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Posts: 1938
3 years ago
What do theory and empirical evidence say about capital structure and the cost of capital for MNEs versus their domestic counterparts?
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Fundamentals of Multinational Finance


Edition: 5th
Authors:
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Posts: 1936
3 years ago
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In theory, MNEs should be able to support greater amounts of debt due to reduced variability of cash flows brought about by diversification across countries. And, because of this reduced risk borne by MNEs, they should also have a lower cost of capital. However, empirical research finds that domestic firms tend to use greater amounts of short and intermediate debt than do MNEs and that the cost of capital is greater for MNEs due to increased agency costs, political risk, exchange rate risk, and asymmetric information.
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