NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Capital Structure with Risky Foreign Investment

Mihir A. Desai, C. Fritz Foley, James R. Hines Jr.

NBER Working Paper No. 12276
Issued in June 2006
NBER Program(s):   CF   ITI

American multinational firms respond to politically risky environments by adjusting their capital structures abroad and at home. Foreign subsidiaries located in politically risky countries have significantly more debt than do other foreign affiliates of the same parent companies. American firms further limit their equity exposures in politically risky countries by sharing ownership with local partners and by serving foreign markets with exports rather than local production. The residual political risk borne by parent companies leads them to use less domestic leverage, resulting in lower firm-wide leverage. Multinational firms with above-average exposures to politically risky countries have 8.4 percent less domestic leverage than do other firms. These findings illustrate the impact of risk exposures on capital structure.

download in pdf format
   (156 K)

email paper

This paper is available as PDF (156 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w12276

Published: Desai, Mihir A. & Fritz Foley, C. & Hines Jr., James R., 2008. "Capital structure with risky foreign investment," Journal of Financial Economics, Elsevier, vol. 88(3), pages 534-553, June. citation courtesy of

Users who downloaded this paper also downloaded these:
Robb and Robinson w16272 The Capital Structure Decisions of New Firms
Rauh and Sufi w14488 Capital Structure and Debt Structure
Fan, Titman, and Twite w16445 An International Comparison of Capital Structure and Debt Maturity Choices
Campello and Giambona w18147 Real Assets and Capital Structure
Welch w8782 Columbus' Egg: The Real Determinant of Capital Structure
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us