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http://hdl.handle.net/10419/27656
  
Title:Who is afraid of political risk? Multinational firms and their choice of capital structure PDF Logo
Authors:Kesternich, Iris
Schnitzer, Monika
Issue Date:2009
Series/Report no.:Discussion paper Series 1 / Volkswirtschaftliches Forschungszentrum der Deutschen Bundesbank 2009,02
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, unreliable intellectual property rights and confiscatory taxation. In our theoretical analysis we find that, as political risk increases, the ownership share tends to decrease, 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.
Subjects:Multinational firms
political risk
capital structure
leverage
ownership structure
foreign affiliates
JEL:G32
F21
F23
Document Type:Working Paper
Appears in Collections:Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank

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