شبکه های سرمایه داخلی به عنوان یک منبع از مزیت رقابتی MNC: مدارک و شواهد از شرکت تابعه خارجی با تصمیم گیری ساختار سرمایه
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Research in International Business and Finance, Volume 22, Issue 3, September 2008, Pages 409–439
This paper documents multinational company (MNC) strategic advantages arising from its internal financial network. Using data from US multinational company affiliates in 62 countries, we show that MNC affiliates in countries with low credit availability, poor creditor protections, high political risks, and high inflation are found to bear high interest costs and multinational affiliate debt ratios are high in high tax countries. In addition, affiliates in countries with high (low) credit availability, a high (low) corruption index, low (high) political risks and high (low) currency depreciation are found to carry high external (parent) debt ratios. We also find that currency depreciation, credit availability, and location in common law countries are negatively associated with the use of parent (relative to external) debt. Thus, our findings suggest that affiliates substitute external debt with parent debt using internal capital markets to overcome weak external financial markets and institutional environments. This is important evidence of the strategic competitive advantage based on financial networks enjoyed by MNCs.
Foreign operations of multinational companies (MNCs) suffer from the limitations of being foreign – so they must have some unique advantage compared to local competitors. Generally, this advantage is seen to arise from sources such as specialized technology and management know-how, important brand or other intangible asset, or another competency, resource, or advantage (e.g., Buckley, 1998, Buckley and Casson, 1976 and Hennart, 1982). Another stream of literature has noted that multinational networks can themselves be sources of social capital and strategic advantage (e.g., Gulati et al., 1989 and Holm et al., 1996) and multinational networks can provide operating flexibility and be sources of valuable real options (e.g., Buckley and Tse, 1996 and Kogut and Kulatalika, 1994). Many others have contended that much of this strategic option value arises from the financing advantages of MNCs, i.e., the MNCs enjoy advantageous financing access and a lower cost of capital with their ability to tap multiple national capital markets (e.g., Eiteman et al., 2001 and Eun and Resnick, 2001). However, there is little empirical evidence of the advantages based on access to the internal financial network theoretically enjoyed by MNCs. This paper provides important new empirical evidence of the strategic advantage resulting from the multinational financial network available to MNCs by examining the nature and composition of the foreign subsidiary capital structure of US MNCs. We show that MNCs use their access to multinational financial networks to fund their foreign affiliates when local financing is costly or not easily available. More specifically, using recent data on the financing of US MNC affiliates in 62 countries (all countries where such data is available) this study examines how MNC affiliate's capital structures respond to host country tax, legal, financial, and economic structures. In addition to examining the determinants of overall debt structure of multinational affiliates, we also disaggregate the total subsidiary debt into parent debt and external (non-parent) debt and assess their determinants. We document important findings regarding the debt-equity composition of the foreign affiliates of US MNCs. First, without considering other country factors as control variables, multinationals seem to adapt to local capital structure norms but, as expected, the importance of local capital structure norms disappears when other aspects of the host country institutional features are included in the estimates – confirming that local capital structure norms are determined by our chosen institutional features of national financial systems. Second, we document the impact of local institutional conditions on debt costs of the foreign affiliates of US MNCs. We find that location in countries with common law, currency depreciation, and higher credit availability is negatively associated with the use of debt in the mix of parent financing of subsidiaries. We find support for the contention that multinationals have high affiliate debt ratios in high tax countries. We also find that MNC affiliates in countries with low credit availability, poor creditor protections, high political risks, and high inflation are found to bear high interest costs, especially interest costs on external debt. Third, and very interestingly, we also document the ability of MNCs to switch between parent debt and local debt to reflect local conditions. We find that affiliates in countries with high (low) credit availability, high (low) corruption perception index, low (high) political risks and high (low) currency depreciation are found to carry high external (parent) debt ratios. These findings suggest that not only does affiliates’ use of external debt depend on country institutional factors and interest rates, but also that affiliates substitute external debt with parent debt in countries with poor institutional features. Thus, these results show the importance of MNC internal capital markets in overcoming weak institutional environments – an important competitive advantage for MNCs that is not usually available to single country firms. The following section of the paper briefly reviews the theoretical and empirical evidence on determinants of affiliate capital structure. Section 3 describes the data – the BEA benchmark survey data and our sample characteristics in 62 countries. Section 4 reports the empirical results and analysis, and Section 5 concludes.
نتیجه گیری انگلیسی
Capital structure choice is an important strategic decision for most companies. Even in a domestic or single country context, it is a fairly complex decision influenced by many factors that are reflected in the stability of a company's cash flows, business risk, management appetite for risk, risks of financial distress, default and bankruptcy risks, credit agency standards, industry debt ratio norms, and other factors that may include factors unique to the firm and its business environment. This complexity increases for companies that operate in more than one country. In such a company, capital structure decisions must reflect the varying business and financial environments in the many countries where it operates. Further, such a company must make multiple capital structure decisions, i.e., capital structure decisions for each foreign affiliate and for the parent company. Due to international differences in business and financial institutional structures, choosing the best or optimal capital structure for a multinational company and its affiliates is, needless to say, a challenging task. In addition, given that data on foreign affiliate capital structures is not disclosed by MNCs, there is very limited prior empirical research on this complex but very important topic – most of the prior research on this topic has been descriptive or theoretical. In this paper, using benchmark surveys of US MNC affiliate financing in 62 countries, we examine and document how multinationals respond to international differences in taxes and legal structures, country political risks, exchange rate risks, local capital structure norms, private credit availability, and inflation rates in determining affiliate capital structures and interest costs. We examine total debt, external debt, and parent debt ratios and the relative role of MNC internal capital markets in the financing of their foreign affiliates. We find that before controlling for other country variables, multinationals seem to adapt to local capital structure norms. However, the importance of local norms disappears when other national institutional characteristics are included in the regressions indicating that local capital structure norms reflect these selected national characteristics. More interestingly, our result shows that host country tax rates affect affiliate capital structure and use of debt. Multinationals take advantage of higher local tax rates by holding high debt levels in such affiliates. Affiliates in countries with poor access to capital markets, weak creditor protection, high political risks, and high inflation rates face high interest rates on external debt. However, as can be expected, the interest sensitivity of parent debt in affiliate capital structure is low with regard to these national institutional factors. MNC affiliates are found to borrow more from external non-parent sources, in countries where such financing is available, e.g., in countries with low political risks, and in countries where the real cost of debt may be low, i.e., in countries with high inflation rates and high levels of corruption. In addition, we find that multinationals tend to use more external/non-parent debt in countries with weak exchange rates perhaps to increase net foreign currency exposures to weak currencies. As can be expected, with regard to borrowing from MNC parents (in contrast to external arms-length borrowing), we find a sharply opposite pattern. MNC affiliates increase their net borrowing from parents in countries with weak capital market development, high political risk, and low corruption while MNC affiliates in common law countries tend to borrow less from parents. These findings indicate that affiliates offset the lack of external debt availability with parent debt in countries with poor institutional features – showing the importance of internal MNC capital markets in overcoming weak national institutional environments and high interest costs prevalent in such countries. This financial flexibility is likely an important source of competitive advantage for MNCs and their affiliates. Overall, these are important new findings that contribute significantly to our understanding of the determinants of MNC affiliate capital structure – a complex decision influenced by many factors. Further, these findings provide direct evidence of MNC ability to develop competitive advantage by minimizing overall system-wide taxes and currency exposure, and by overcoming poor local financial conditions where necessary with parent financing. These findings should be of much interest to managers, policy makers, and scholars.