Multinational Affiliates and Local Financial Markets
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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.
Series:
Working Paper No. 2004/107
Subject:
Balance of payments Currencies Exchange rates Financial markets Financial sector development Financial statements Foreign direct investment Foreign exchange Money Public financial management (PFM)
English
Publication Date:
June 1, 2004
ISBN/ISSN:
9781451853018/1018-5941
Stock No:
WPIEA1072004
Pages:
26
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