Citation

Discussion Paper Details

Please find the details for DP6468 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Who is Afraid of Political Risk? Multinational Firms and their Choice of Capital Structure

Author(s): Iris Kesternich and Monika Schnitzer

Publication Date: September 2007

Keyword(s): capital structure, leverage, Multinational firms, ownership structure and political risk

Programme Area(s): International Trade and Regional Economics

Abstract: This paper investigates how multinational firms choose the capital structure of their foreign affiliates in response to political risk. We focus on two choice variables, the leverage and the ownership structure of the foreign affiliate, and we distinguish different types of political risk, such as expropriation, corruption and confiscatory taxation. In our theoretical analysis we find that, as political risk increases, the ownership share always decreases, whereas leverage can both increase or decrease, depending on the type of political risk. Using the Microdatabase Direct Investment of the Deutsche Bundesbank, we find supportive evidence for these different effects.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6468

Bibliographic Reference

Kesternich, I and Schnitzer, M. 2007. 'Who is Afraid of Political Risk? Multinational Firms and their Choice of Capital Structure'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6468