Hostname: page-component-78c5997874-fbnjt Total loading time: 0 Render date: 2024-11-15T08:31:30.507Z Has data issue: false hasContentIssue false
  • English
  • Français

A Framework for Financial Decisions in Multinational Corporations–Summary of Recent Research

Published online by Cambridge University Press:  19 October 2009

Ruediger Naumann-Etienne
Get access Rights & Permissions [Opens in a new window]

Extract

The purpose behind this review of recent research on financial decisions in the multinational corporation (MNC) has been, first, to further the discussion as to the appropriate normative framework applicable to financial decisions in the MNC, and second, to suggest directions for further research by pointing to open questions.

The analysis focuses on the major financial decision areas of the firm as well as on important new factors introduced by the international environment. Specific issues disussed are: capital-market segmentation, financing decision, financial structure and cost of capital, investment decision and exchange risk.

The principal conclusion presented as a basis for discussion is that the financial decision framework developed for the one-country firm can essentially be extended to the case of the MNC. This should hold true even if partial restrictions to capital flows exist. The only limiting requirement is that all subsidiaries be wholly owned, i.e., equity securities be issued by the parent firm only. A specific case in which the analogy to, the one-country firm breaks down arises when joint ventures are introduced.

A number of areas for further research are identified. Most prominent, perhaps, are (1) an operational concept of economic exchange risk exposure, i.e., measuring the impact of exchange rate changes on the value of foreign operations; (2) criteria for evaluating foreign investment projects consistent with the firm's cost of capital; and (3) empirical evidence on the extent to which MNCs are affected by capital-market segmentation.

Type
Financing the Multinational Firm
Information
Journal of Financial and Quantitative Analysis , Volume 9 , Issue 5 , November 1974 , pp. 859 - 874
Copyright
Copyright © School of Business Administration, University of Washington 1974

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Adler, Michael. “The Cost of Capital and Valuation of a Two-Country Firm.” Journal of Finance, March 1974, pp. 119–132.Google Scholar
[2]Alder, Michael. “Valuation and Financing of the Multi-National Firm: Comment.” Kyklos, November 4, 1973, pp. 849–851.Google Scholar
[3]Agmon, Tamir. “The Relations among Equity Markets: A Study of Share Price Co-Movements in the United States, U.K., Germany and Japan.” Journal of Finance, September 1972, pp. 839–856.Google Scholar
[4]Caves, Richard E. “International Corporations: The Industrial Economics of Foreign Investment.” Economica, February 1971, pp. 1–27.CrossRefGoogle Scholar
[5]Dawson, Steven. M. “Eurobond Currency Selection: Hindsight.” Financial Executive, November 1973, pp. 72–73.Google Scholar
[6]Dufey, Gunter. “Corporate Finance and Exchange Rate Changes.” Financial Management, Summer 1971, pp. 51–57.Google Scholar
[7]Eiteman, David K., and Stonehill, Arthur I.. Multinational Business Finance. Reading, Mass.: Addison-Wesley, 1973.CrossRefGoogle Scholar
[8]Fama, Eugene F., and Miller, Merton. The Theory of Finance. New York: Holt, Rinehart and Winston, 1972.Google Scholar
[9]de Faro, Clovis, and Jucker, James V.. “The Impact of Inflation and Devaluation on the Selection of an International Borrowing Source.” Journal of International Business Studies, Fall 1973, pp. 97–104.CrossRefGoogle Scholar
[10]Financial Accounting Standards Board. “An Analysis of Issues Related to Accounting for Foreign Currency Translation.” Discussion Memorandum, February 21, 1974.Google Scholar
[11]Gladwin, Thomas N., and Giddy, Ian H.. “A Survey of Foreign Direct Investment Theory.” Working Paper No. 86. Division of Research, Graduate School of Business Administration, University of Michigan, 1973 (multilith).Google Scholar
[12]Grubel, Herbert G. “Internationally Diversified Portfolios.” American Economic Review, December 1968, pp. 1299–1314.Google Scholar
[13]Haley, Charles W., and Schall, Lawrence D.. The Theory of Financial Decisions. New York: McGraw-Hill, 1973.Google Scholar
[14]Heckerman, Donald. “The Exchange Risk of Foreign Operations.” Journal of Business, January 1972, pp. 42–48.CrossRefGoogle Scholar
[15]Kohers, Ted. “A Comparison of Performance between U.S. Multinational Corporations and U.S. Domestic Corporations.” Unpublished doctoral dissertation, University of Oregon, 1970.Google Scholar
[16]Kopits, George F. “Dividend Remittance Behavior within the International Firm.” Unpublished doctoral dissertation, Georgetown University, 1971.CrossRefGoogle Scholar
[17]Krainer, Robert E. “The Valuation and Financing of the Multinational Firm.” Kyklos, November 3, 1972, pp. 553–573.CrossRefGoogle Scholar
[18]Krainer, Robert E. “The Valuation and Financing of the Multinational Firm: Reply and Some Extensions.” Kyklos, November 4, 1973, pp. 857–865.CrossRefGoogle Scholar
[19]Krause, Lawrence B., and Dam, Kenneth W.. Federal Tax Treatment of Foreign Income. Washington: Brookings Institution, 1964.Google Scholar
[20]Lietaer, Bernard S.Financial Management of Foreign Exchange. Cambridge, Mass.: M.I.T. Press, 1971.Google Scholar
[21]Levy, Haim, and Sarnat, Marshall. “International Diversification of Investment Portfolios.” American Economic Review, September 1970, pp. 668–675.Google Scholar
[22]Mehta, Dileep, and Inselbag, Isik. “Working Capital Management of a Multi-National Firm.” Multinational Business Operations – Financial Management, edited by Sethi, S. Prakash and Sheth, Jagdish N., vol. 4. Pacific Palisades, Calif.: Goodyear, 1973, pp. 56–79.Google Scholar
[23]Modigliani, Franco, and Miller, Merton. “The Cost of Capital, Corporation Finance, and the Theory of Investment.” American Economic Review, June 1958, pp. 261–297.Google Scholar
[24]Myers, Stewart C. “Interactions of Corporate Financing and Investment Decisions – Implications for Capital Budgeting.” Journal of Finance, March 1974, pp. 1–26.Google Scholar
[25]Ness, Walter N. “A Linear Programming Approach to Financing the Multinational Corporation.” Financial Management, Winter 1972, pp. 88–100.CrossRefGoogle Scholar
[26]Ness, Walter N. “U.S. Income Tax Deferral and the Dividend Remittance Policy of Multinational Corporations.” Working Paper No. 73–67, Graduate School of Business, New York University, 1973.Google Scholar
[27]Obersteiner, Erich. “Should the Foreign Affiliate Remit Dividends or Reinvest?” Financial Management, Spring 1973, pp. 88–93.CrossRefGoogle Scholar
[28]Remmers, Lee. “Some Determinants of Financial Structure in Foreign Subsidiaries.”Paper presented at the Financial Management Association Meeting,Atlanta,October 1973.Google Scholar
[29]Robbins, Sidney M., and Stobaugh, Robert B.. “Capital Mobility and the International Firm: Comments.” International Mobility and Movements of Capital, edited by Machlup, Fritz, Salant, Walter S., and Tarshis, Lorie. New York: National Bureau of Economic Research, 1972, pp. 354–365.Google Scholar
[30]Robbins, Sidney M.Money in the Multinational Enterprise. New York: Basic Books, 1973.Google Scholar
[31]Rutenberg, David P. “Maneuvering Liquid Assets in a Multinational Company: Formulation and Deterministic Solution Procedures.” Management Science, June 1970, pp. B 671–684.CrossRefGoogle Scholar
[32]Severn, Alan K. “The Financing of the Multi-National Firm: Comment.” Kyklos, November 4, 1973, pp. 852–856.CrossRefGoogle Scholar
[33]Shapiro, Alan. “Exchange Risk and the Value of the Multinational Corporation.” Unpublished paper, Wharton School, University of Pennsylvania.Google Scholar
[34]Stevens, Guy V. G. “Capital Mobility and the International Firm.” International Mobility and Movement of Capital, edited by Machlup, Fritz, Salant, Walter S., and Tarshis, Lorie. New York: National Bureau of Economic Research, 1972, pp. 323–353.Google Scholar
[35]Stonehill, Arthur, and Stitzel, Thomas. “The Financial Structure and Multinational Corporations.” California Management Review, Fall 1969, pp. 91–96.CrossRefGoogle Scholar
[36]Stobaugh, Robert B. “How to Analyze Foreign Investment Climates?” Harvard Business Review September–October 1969, pp. 100–108.Google Scholar
[37]Upson, Roger B. “The Usage of Foreign Capital Markets by U.S. International Corporations.” Unpublished doctoral dissertation, University of Michigan, 1965.Google Scholar
[38]Vaupel, James W., and Curhan, Joan P.. The Making of the Multinational Enterprise. Boston: Division of Research, Graduate School of Business Administration, Harvard University, 1969.Google Scholar
[39]Van Home, James c.Financial Management and Policy, 2d ed.Englewood Cliffs, N.J.: Prentice-Hall, 1971.Google Scholar
[40]Vernon, Raymond. Manager in the International Economy, 2d ed.Englewood Cliffs, N.J.: Prentice-Hall, 1972.Google Scholar
[41]Vickers, Douglas. The Theory of the Firm: Production, Capital and Finance, New York: McGraw-Hill, 1968.Google Scholar
[42]Weston, J. Fred, and Brigham, Eugene F.. Managerial Finance, 4th ed.New York: Holt, Rinehart and Winston, 1972.Google Scholar
[43]Weston, J. Fred, and Sorge, Bart W.. International Managerial Finance. Homewood, Ill.: P. D. Irwin, 1972.Google Scholar
[44]Zenoff, David B., and Zwick, Jack. International Financial Management. Englewood Cliffs, N.J.: Prentice-Hall, 1969.Google Scholar