International Activities, Agency Problems, and Corporate Financing-Empirical Evidence for German Firms

Abstract

This paper examines capital structure decisions as a strategic device to mitigate overinvestment problems. The analysis is based on a two-tiered approach, including agency problems between shareholders and the CEO (firm-level), and between the CEO and international executives (intra-firm level). Results indicate that corporate debt policy is used to mitigate overinvestment problems on both levels. The analysis of debt maturity choices confirms that intra-firm agency problems are unaffected by the level of short-term debt. Overinvestment problems on the firm-level are alleviated by long- and short-term debt.

Keywords: Agency Costs, Capital Structure, Corporate Financing, Multinational Firms, International Business

JEL Classification: F23, G32