Creditor Rights and Debt Allocation within Multinationals

Akbel, Basak; Schnitzer, Monika

doi:10.2139/ssrn.1102543

Cited by 4 publications

(4 citation statements)

References 37 publications

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“…Akbel and Schnitzer (2011) take into consideration the legal environment to analyze the decision of a multinational enterprise to choose between centralized (parental) or decentralized borrowing (local). The study by Desai et al (2008) find that parent firms which are exposed to significant foreign political risk use less leverage.…”

Section: Review Of Literaturementioning

confidence: 99%

“…Aulakh and Mudambi (2005) find that flows from subsidiary to the headquarter decreases with growing concentration and growth in the industry to which the subsidiary belongs. Akbel and Schnitzer (2011) examine industry-level patterns and observe that MNCs operating in industries with long-term pay-off periods prefer a centralized borrowing structure (parent borrowing).…”

Section: Industry-based View and Financing Of Ofdimentioning

confidence: 99%

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Determinants of financing of outward foreign direct investment by Indian MNEs

Tripathi

Thukral

2018

IJOEM

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Purpose The purpose of this paper is to investigate the determinants of financing the outward foreign direct investment (OFDI) by building a three-level framework residing on host country market imperfections, ownership advantages of parent firm investing abroad and the industry to which it belongs. Design/methodology/approach The paper used random effects probit model. Findings Parent debt financing of OFDI by Indian parent firms is driven by the credit market development of the host country, the uniqueness of the industry to which parent firm belongs and systematic risk. Debt-oriented firms are found to invest more via parent debt. Research limitations/implications The limitations of this study are as follows: –first, time period before 2008 could not be considered due to unavailability of data in the public domain. Second, the characteristics of foreign affiliates that spread across diverse host countries have not been factored in. Third, in the case of parent’s industry-level determinants, financial sector has not been included because the financing and risk-taking strategy of this sector are quite different from other sectors. Finally, the present study assumes financing decision to be centralized in the multinational system at the parent firm. Practical implications The practical implications of this study are as follows: first, industry innovativeness must be taken as a guide by the Indian MNEs to finance their OFDI and they must provide equity. Second, the study suggests that Indian MNEs rely on their existing capital structure while financing their OFDI. Third, parent firms are found to follow the industry norms. Fourth, parent firms must finance their OFDI by considering the development of credit market in the host country. Fifth, host government must focus on improving the credit market development of their economy and not just reducing tax rates to attract FDI into their economy. Originality/value Empirically examining internal flows in a multinational system has limited the research in the area of financing the OFDI. The paper is one of the first attempts to formally develop a model of factors that shape financing of OFDI in case of one such emerging market – India.

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Section: Review Of Literaturementioning

confidence: 99%

Section: Industry-based View and Financing Of Ofdimentioning

confidence: 99%

Determinants of financing of outward foreign direct investment by Indian MNEs

Tripathi

Thukral

2018

IJOEM

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“…4 It is assumed that borrowing costs depend only on local debt ratios, not on the total debt ratio, which ist most likely to happen under decentralized borrowing or in the absence of any guarantee of the parent company. Although Inderst and Muller¨ (2003) and, more recently, Akbel and Schnitzer (2011) showed that decentralized borrowing may indeed have its merits, my interpretation here is simply that a guarantee by the parent company is not credible.…”

Section: Introductionmentioning

confidence: 80%

Multinational financial structure and tax competition

Wrede

2013

Swiss J Economics Statistics

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Summary This paper analyzes tax competition when welfare maximizing jurisdictions levy source-based corporate taxes and multinational enterprises choose tax-efficient capital-to-debt ratios. Under separate accounting, multinationals shift debt from low-tax to high-tax countries. The Nash equilibrium of the tax competition game is characterized by underprovision of publicly provided goods. Under formula apportionment, the country-specific capital-to-debt ratio of a multinational’s affiliate is independent of the jurisdiction’s tax rate. Public good provision is either too large or too small. However, there is clearly underprovision under formula apportionment if the debt externality is not negative.

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“…The fact that board members of multinationals and banks are from the same social and political network and judicial environment reduces uncertainty and subsequently risk exposure when multinationals are expanding abroad. For example, Akbel and Schnitzer () identify how the choice of MNEs between centralised or decentralised borrowing is affected by the legal environment(s) – i.e. creditor rights and bankruptcy costs – of the countries in which a MNE's subsidiaries operate.…”

Section: Literature Reviewmentioning

confidence: 99%

The Impact of Multinationals on the Size of the Banking System

Schoenmaker

Werkhoven²

2013

Kyklos

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Summary After the global financial crisis, the size of the banking sector has become a hotly debated topic. To measure the size of the banking system a country's banking assets divided by the country's gross domestic product (GDP) is commonly applied as a general yardstick. This paper shows that this yardstick does not take into account differences in financial needs. In particular, countries differ with regard to the number and size of multinational enterprises. In a cross‐country empirical study, we find a statistically significant relationship between the presence of large banks and the presence of multinationals, after controlling for the size of the country. That is why we develop an additional specific yardstick for firm specific financial needs.

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Creditor Rights and Debt Allocation within Multinationals

Cited by 4 publications

References 37 publications

Determinants of financing of outward foreign direct investment by Indian MNEs

Determinants of financing of outward foreign direct investment by Indian MNEs

Multinational financial structure and tax competition

The Impact of Multinationals on the Size of the Banking System

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