Multinational Affiliates and Local Financial Markets

By Selin Sayek, Alexander Lehmann, Hyoung Goo Kang

June 1, 2004

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Selin Sayek, Alexander Lehmann, and Hyoung Goo Kang. Multinational Affiliates and Local Financial Markets, (USA: International Monetary Fund, 2004) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We use data on the sources of debt finance of U.S. majority-owned foreign affiliates in 53 countries over the period 1983 to 2001 to examine the role of financial market development, and exposure to host country-specific risk on the financing choices of these affiliates. We find that total balance sheets are about four times as large as the cross-border component of foreign direct investment (FDI). The extent of financial leverage through local debt is positively related to host-country corporate tax rates, exchange rate variability, local currency-denominated sales, and financial development. Factors that further the role of local debt reduce that of parent company debt, and through this substitution overall leverage increases.

Subject: Balance of payments, Currencies, Exchange rates, Financial markets, Financial sector development, Financial statements, Foreign direct investment, Foreign exchange, Money, Public financial management (PFM)

Keywords: Capital structure, Cross-border FDI debt, Currencies, Debt, Debt to asset ratio, Equity ratio, Exchange rate variability, Exchange rates, FDI finance, Financial development, Financial leverage, Financial sector development, Financial statements, Foreign direct investment, Market, Multinational companies, Parent company, Parent debt, Parent-company debt, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/107
Stock No:

WPIEA1072004
ISBN:

9781451853018
ISSN:

1018-5941

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