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INVESTMENT OPPORTUNITIES AND MULTINATIONALITY: EVIDENCE FROM CAPITAL STRUCTURE CHANGES
Author(s) -
Rahman Manzur
Publication year - 1997
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.1475-6803.1997.tb00258.x
Subject(s) - multinational corporation , valuation effects , valuation (finance) , economic rent , capital structure , equity (law) , monetary economics , business , foreign direct investment , debt , economics , finance , market economy , macroeconomics , political science , law
I examine shareholder valuation effects of capital structure changes for multinational (MNC) and domestic (DC) corporations. The internalization theory of foreign direct investment posits that MNCs create value by internalizing the market for their assets across national borders. If the financing decision is related to the rents from future investments, MNCs may have differential valuation effects to capital structure changes vis‐à‐vis DCs. I find that MNCs have lower (greater) excess returns for debt‐for‐equity (equity‐for‐debt) exchanges than DCs. The cross‐sectional analyses show that the valuation effects are differentially related to the investment opportunities of MNCs and DCs.