Who is Afraid of Political Risk? Multinational Firms and Their Choice of Capital Structure
By Iris Kesternich, Monika Schnitzer. Social Science Research Network, 2010
182 citations recorded by the source corpus.
This paper investigates how multinational firms choose the capital structure of their foreign affiliates in response to political risk. We focus on two choice variables, the leverage and the ownership structure of the foreign affiliate, and we distinguish different types of political risk, such as expropriation, unreliable intellectual property rights and confiscatory taxation. In our theoretical analysis we find that, as political risk increases, the ownership share tends to decrease, whereas leverage can both increase or decrease, depending on the type of political risk. Using the Microdatabase Direct Investment of the Deutsche Bundesbank, we find supportive evidence for these different effects.
Subfields: Accounting, Strategy and Management
View Paper: https://www.semanticscholar.org/paper/3f9c309bbd23d7cb2bea1ab73156aaed443694ec
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Citations in the corpus
- State-owned MNCs and host country expropriation risk: The role of home state soft power and economic gunboat diplomacy (2014, background): “This can take the form of a direct seizure of assets or it can be through a series of discriminatory actions, often called " creeping expropriation " (Kesternich & Schnitzer, 2010).”
- Capital Structure Choice and Company Taxation: A Meta-Study (2013, unknown): “A first strand of literature avoids the use of direct marginal tax rate (MTR) proxies altogether (see MacKie-Mason (1990); Dhaliwal et al.”
- How National and International Financial Development Affect Industrial R&D (2011, unknown): “Further, affiliates may be financed via a mix of ownership and debt (Kesternich and Schnitzer, 2010).”