Financial Structure and Multinational Corporations

by Arthur Stonehill, Thomas Stitzel

Fall 1969

Volume 12
Issue 1

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The time has come for financial executives of multinational corporations, their bankers, and financial theorists to rethink domestically oriented concepts which have traditionally influenced the choice of corporate financial structures. Increased reliance by the U.S. corporations on multinational operations, financed in part by foreign sources of funds, necessitates focusing on a new set of environmental variables which must be incorporated into the determination of an appropriate financial structure. Increased foreign borrowing complicates the choice of an appropriate financial structure. The two major reasons for difficulties are that financial structure norms vary dramatically between countries, even if one hold constant such traditional determinants as industry, size, and variability of sales, and both the U.S. and foreign host governments are becoming more concerned about the way in which foreign subsidiaries of the U.S. firms are financed. Most multinational corporations report consolidated foreign and domestic balance sheet and income figures. Any change in foreign borrowing will automatically change the ratio of debt to total assets for the consolidated corporation, unless offset by a change in domestic borrowing.

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