Financial Structure and Cost of Capital in the Multinational Corporation

Shapiro, Alan C.

doi:10.2307/2330383

Cited by 113 publications

(69 citation statements)

References 20 publications

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“…Cost of equity is opportunity cost of alternative investment opportunities (e.g., Shapiro 1978, Kerins, Smith, and Smith 2004, Indjejikian 2007 and equals the rate of return investors require to hold stocks of a firm. Easley and O'Hara (2004) regarded an imperfect capital market where differently informed investors with rational expectations hold risky securities.…”

Section: Investors' Return Requirementsmentioning

confidence: 99%

Capital Market Implications of Corporate Disclosure: German Evidence

Grüning

2011

Bus Res

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This paper investigates the relationship between annual report disclosure, market liquidity, and capital cost for firms registered on the Deutsche Börse. Disclosure is comprehensively measured using the innovative Artificial Intelligence Measurement of Disclosure (AIMD). Results show that annual report disclosure enhances market liquidity by changing investors’ expectations and inducing portfolio adjustments. Trading frictions are negatively associated with disclosure. The study provides evidence for a capital-cost-reduction effect of disclosure based on the analysis of investors’ return requirements and market values. Altogether, no evidence is found that the information processing at the German capital market is structurally different from other markets.

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Section: Investors' Return Requirementsmentioning

confidence: 99%

Capital Market Implications of Corporate Disclosure: German Evidence

Grüning

2011

Bus Res

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“…1 See also Shapiro (1978), Shapiro (1989), Eiteman, Stonehill and Moffett (1992). 2 By external debt here, we mean external debt of the subsidiary that is not guaranteed by the parent.…”

Section: [Pp 49]mentioning

confidence: 99%

“…The FTC limitation, in the context of our model, is simply equal to τ h times the taxable income of the subsidiary. 8 We analyze the case when τ f > τ h . Since the FTC limitation is binding in this case, it becomes desirable for the multinational to transfer income from the subsidiary to the parent in the form of interest payments, since these are tax deductible in the foreign country.…”

Section: The Modelmentioning

confidence: 99%

“…Bankruptcy costs are modeled by assuming that a fraction, denoted b ∈ (0, 1), of the available cash flow y is dissipated in the bankruptcy proceedings and only (1 − b)y is available for distribution. 8 See Scholes and Wolfson (1992). 9 If τ f < τ h then, in the context of our model, since intra-firm parent debt and equity result in an equivalent tax burden, the firm would not have any preference for one over the other.…”

Section: The Modelmentioning

confidence: 99%

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Financing of multinational subsidiaries: Parent debt vs. external debt

Chowdhry

Nanda

1994

Journal of Corporate Finance

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“…Shapiro (1978) states that because multinational companies operate in various international markets, they are better able to diversify their cash flows relative to firms with less international exposure. Hence, MNCs' returns will be less correlated with the domestic market returns, leading to a lower systematic risk and consequently lower stock returns.…”

mentioning

confidence: 99%

Firms’ Degree of Internationalisation and the Cross-Section of Stock Returns: Evidence from Multinational Listed Companies in the U.K.

Hashem

2012

SSRN Journal

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This paper proposes two main opposing channels through which firms' degree of internationalisation affects stock returns. In particular, firms that operate internationally benefit from risk reduction via diversification channel and also encounter higher risk exposure due to various risk factors in international markets. Using a sample of 566 multinational publicly listed companies in the London Stock Exchange during 1999 and 2010, this paper empirically tests whether firms' degree of internationalisation is a new asset pricing factor in addition to the standard risk factors such as beta, size, book-to-market, leverage, momentum, and product market competition. The results show that firms' degree of internationalisation is positively and significantly related to the cross-section of stock returns in all Fama and MacBeth regressions, even after accounting for beta, size, book-to-market, leverage, and momentum. In addition, the effect of internationalisation on stock return becomes statistically insignificant after controlling for product market competition, indicating that the interaction term between competition and internationalisation plays a role in explaining stock returns. Overall, the empirical findings indicate that firms or industries with higher degree of internationalisation earn, on average, higher risk-adjusted returns. The results of this paper suggest that although multinational firms can benefit from cash flow diversification by going international, firms with higher degree of internationalisation are risky than firms with lower degree of internationalisation due to higher political, foreign exchange, and distress risks faced by multinational companies in international markets.

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Financial Structure and Cost of Capital in the Multinational Corporation

Cited by 113 publications

References 20 publications

Capital Market Implications of Corporate Disclosure: German Evidence

Capital Market Implications of Corporate Disclosure: German Evidence

Financing of multinational subsidiaries: Parent debt vs. external debt

Firms’ Degree of Internationalisation and the Cross-Section of Stock Returns: Evidence from Multinational Listed Companies in the U.K.

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