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Title:Debt financing and sharp currency depreciations: wholly vs. partially owned multinational affiliates PDF Logo
Authors:Hebous, Shafik
Weichenrieder, Alfons J.
Issue Date:2009
Series/Report no.:CESifo working paper 2892
Abstract:This paper provides empirical evidence on two potential costs of shared ownership of German affiliates abroad. First, in periods of currency crises, wholly-owned affiliates, in contrast to partially-owned affiliates, seem to circumvent financial constraints by accessing capital from their parent companies. In terms of differences in performance regarding sales of both types of firms, wholly-owned affiliates have a significantly better sales performance than partially-owned affiliates in periods of crises. This finding contributes to the evidence that FDI helps in mitigating the negative consequences of sharp currency depreciation, and stresses that this effect works especially through capital inflows to wholly-owned affiliates. Second, the debt financing of partially-owned affiliates is less sensitive to the tax rate suggesting that partially-owned affiliates rely less on international debt shifting than wholly-owned affiliates. This indicates that partially-owned affiliates are less flexible to exploit tax efficient strategies.
Subjects:foreign direct investment
capital structure
ownership structure
currency crises
corporate taxation
JEL:F23
G32
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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