Multinational Affiliates and Local Financial Markets

26 Pages Posted: 15 Feb 2006

See all articles by Alexander Lehmann

Alexander Lehmann

International Monetary Fund (IMF)

Hyoung Goo Kang

Hanyang University

Multiple version iconThere are 2 versions of this paper

Date Written: June 2004


We use data on the sources of debt finance of U.S. majority-owned foreign affiliates in 53 countries over the period 1983 to 2001 to examine the role of financial market development, and exposure to host country-specific risk on the financing choices of these affiliates. We find that total balance sheets are about four times as large as the cross-border component of foreign direct investment (FDI). The extent of financial leverage through local debt is positively related to host-country corporate tax rates, exchange rate variability, local currency-denominated sales, and financial development. Factors that further the role of local debt reduce that of parent company debt, and through this substitution overall leverage increases.

Keywords: Multinational companies, financial development, capital structure

JEL Classification: F23, F36, G32

Suggested Citation

Lehmann, Alexander and Kang, Hyoung Goo, Multinational Affiliates and Local Financial Markets (June 2004). IMF Working Paper No. 04/107, Available at SSRN:

Alexander Lehmann (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Hyoung Goo Kang

Hanyang University ( email )

222 Wangsimniro
Seoul, 133-791
Korea, Republic of (South Korea)

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