The Corporate Finance of Multinational Firms

Fisher College of Business Working Paper No. 2020-03-001

Charles A. Dice Center Working Paper No. 2020-1

50 Pages Posted: 12 Feb 2020

See all articles by Isil Erel

Isil Erel

Ohio State University (OSU) - Department of Finance

Yeejin Jang

UNSW Australia Business School, School of Banking and Finance

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: February 7, 2020

Abstract

An increasing fraction of firms worldwide operate in multiple countries. We study the costs and benefits of being multinational in firms’ corporate financial decisions and survey the related academic evidence. We document that, among U.S. publicly traded firms, the prevalence of multinationals is approximately the same as domestic firms, using classification schemes relying on both income-based and a sales-based metrics. Outside the U.S., the fraction is lower but has been growing. Multinational firms are exposed to additional risks beyond those facing domestic firms coming from political factors and exchange rates. However, they are likely to benefit from diversification of cash flows and flexibility in capital sources. We show that multinational firms, indeed, have a better access to foreign capital markets and a lower cost of debt than otherwise identical domestic firms, but the evidence on the cost of equity is mixed.

Keywords: capital raising, financing decisions, multi-national corporation, cost of capital, cost of debt, cost of equity, raising capital overseas

JEL Classification: F23, F65, G30, G31, G32

Suggested Citation

Erel, Isil and Jang, Yeejin and Weisbach, Michael S., The Corporate Finance of Multinational Firms (February 7, 2020). Fisher College of Business Working Paper No. 2020-03-001. Available at SSRN: https://ssrn.com/abstract=3535761 or http://dx.doi.org/10.2139/ssrn.3535761

Isil Erel (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Yeejin Jang

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

Sydney, NSW 2052
Australia

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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