Abstract

http://ssrn.com/abstract=902489
 
 

References (28)



 
 

Citations (16)



 


 



Capital Structure with Risky Foreign Investment


Mihir A. Desai


Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

C. Fritz Foley


Harvard Business School; National Bureau of Economic Research (NBER)

James R. Hines Jr.


University of Michigan; NBER

September 2006


Abstract:     
Political risks increase the volatility of multinational firm operating returns, prompting firms to adjust their capital structures. Politically risky countries feature more volatile returns, and the volatility of a parent company's aggregate foreign returns also increases with the extent of the firm's political risk exposure. Parent companies mitigate the cost of return volatility by adjusting their capital structures: a one standard deviation increase in exposure to political risks reduces domestic leverage by 4.4% of its mean level. Foreign political risks most strongly influence the capital structures of firms in industries that are particularly susceptible to political risks. These results suggest that other business risks may similarly affect capital structures.

Number of Pages in PDF File: 33

Keywords: Capital Structure, Political Risk, Leverage, Expropriation

JEL Classification: G15, G32, F30

working papers series


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Date posted: May 17, 2006  

Suggested Citation

Desai, Mihir A. and Foley, C. Fritz and Hines Jr., James R., Capital Structure with Risky Foreign Investment (September 2006). Available at SSRN: http://ssrn.com/abstract=902489 or http://dx.doi.org/10.2139/ssrn.902489

Contact Information

Mihir A. Desai (Contact Author)
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
617-495-6693 (Phone)
617-496-6592 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
C. Fritz Foley
Harvard Business School ( email )
Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
617-495-6375 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
James Rodger Hines
University of Michigan ( email )
625 South State Street
Ann Arbor, MI 48109-1215
United States
NBER
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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