International Corporate Diversification and Financial Flexibility

57 Pages Posted: 1 Aug 2016

See all articles by Yeejin Jang

Yeejin Jang

UNSW Australia Business School, School of Banking and Finance

Date Written: May 2016

Abstract

If the location of a firm’s operations is relevant for financing, multinationals should have easier access to different foreign sources of funding relative to purely domestic firms because their operations are located in multiple countries. Consistent with this hypothesis, I find that U.S. multinationals are more likely to borrow from a foreign bank, particularly from a lender in a country where they have foreign subsidiaries, and to place a corporate bond in international markets than domestic firms. One implication of multinationals’ greater funding flexibility is that they are less affected by capital market dislocations in their home country than domestic firms. Using the 2007-2009 financial crisis as a capital supply shock, I find that U.S. multinationals relied more on foreign funding sources in bank loans after the failure of Lehman Brothers in contrast to domestic firms. Consequently, multinationals reduced their U.S. investment less than domestic firms during the crisis.

Keywords: Financial flexibility, Multinational firms, Financial Crisis, Access to Capital

JEL Classification: G31, G32, F30

Suggested Citation

Jang, Yeejin, International Corporate Diversification and Financial Flexibility (May 2016). Available at SSRN: https://ssrn.com/abstract=2816381 or http://dx.doi.org/10.2139/ssrn.2816381

Yeejin Jang (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

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