Do Multinational Corporations and Domestic Corporations Differ in Leverage Policies?

54 Pages Posted: 12 Jun 2012 Last revised: 26 Jul 2012

See all articles by Jungwon Suh

Jungwon Suh

Sungkyunkwan University (SKKU)

Soonhong Park

Chungnam National University

Bernard Yin Yeung

National University of Singapore - Business School

Date Written: July 25, 2012

Abstract

This study examines the leverage policies of multinational corporations (MNCs) in comparison to those of domestic corporations (DCs). Prior studies document that MNCs have relatively low leverage levels. However, our analysis of U.S. firms over the period 1982-2006 reveals that the leverage levels of MNCs are not significantly lower than those of DCs if we control for key firm characteristics. In addition, MNCs and DCs do not differ significantly in the debt maturity structure. We also find that MNCs and DCs do not differ significantly in terms of the speed of leverage adjustments or the propensity to issue debt vs. equity (or vs. not to issue debt). While prior studies document that MNCs’ financial policies at the subsidiary level are influenced by market imperfections such as taxes and regulations, our findings suggest that their leverage policies at the corporate level are not significantly different from those of DCs. Interestingly, however, our additional analysis of MNCs from outside the U.S. reveals that non-U.S. MNCs issue securities more frequently and adjust leverages faster than their domestic peers do.

Keywords: Multinationals, Capital structure, Speed of leverage adjustment, Security issuance

JEL Classification: F23, G32, G35

Suggested Citation

Suh, Jungwon and Park, Soonhong and Yeung, Bernard Yin, Do Multinational Corporations and Domestic Corporations Differ in Leverage Policies? (July 25, 2012). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2082615 or http://dx.doi.org/10.2139/ssrn.2082615

Jungwon Suh (Contact Author)

Sungkyunkwan University (SKKU) ( email )

206 International Hall
Seoul 110-745, 110-745
Korea, Republic of (South Korea)

Soonhong Park

Chungnam National University ( email )

Korea

Bernard Yin Yeung

National University of Singapore - Business School ( email )

15 Kent Ridge Drive
BIZ 1 Level 6
Singapore, 119245
Singapore
65 6516 3075 (Phone)
65 6779 1365 (Fax)

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