The Association between the Degree of Centralisation of Financial Decision Making and Financial Policy of Multinational Enterprises: Some Empirical Evidence

Abstract

The purpose of this paper is to examine the relationship between centralisation of financial decision-making within multinationals and their financial policy. A sample of UK multinationals were surveyed in order to ascertain their degree of centralisation and the importance placed upon various financial policies and strategies. The research findings reveal that firms with lower levels of centralisation of financial decision-making place different emphasis upon capital structure objectives; tend to follow financial policies which balance the "global vision" of the multinational with "national responsiveness" and stress the usage of local sources of finance for overseas subsidiaries in order to mitigate political risks and capitalise upon market imperfections. The outcome of this paper has policy relevant implications for finance directors who should be aware of the relationship between levels of centralisation and the ability of the multinational to balance its often conflicting objectives.

Keywords: Multinational Enterprises, Centralisation, Financial Decision-Making, Financial Policy

JEL Classification: F23