Premium
THE IMPACT OF FINANCING SOURCES ON MULTINATIONAL PROJECTS
Author(s) -
Madura Jeff,
Fosberg Richard H.
Publication year - 1990
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1990.tb00536.x
Subject(s) - debt , cash flow , multinational corporation , preference , net present value , project finance , business , economics , monetary economics , debt financing , finance , value (mathematics) , microeconomics , production (economics) , machine learning , computer science
It is shown here that market imperfections, such as corporate taxes, are not a necessary condition for a firm to have a debt denomination preference. When the stochastic nature of project cash flows and exchange rates are explicitly considered, the risk of the project is affected by the source of borrowing used to finance the project. It is also shown that the existence of income taxes causes the expected net present value and risk of a foreign project to depend on the source of the firm's borrowing. The debt denomination preference in both cases depends on project‐ and country‐specific variables.