The Corporate Finance of Multinational Firms
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.
We thank Fritz Foley, Jim Hines, David Wessel and participants in a presentation at Brookings for very helpful suggestions. Greg Allen, Hyeik Kim, Rick Ogden provided excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.