6/19/2023 0 Comments Define finance mix strategyThe third usual debt vehicle are bonds, dividing into ‘Eurobonds’ and ‘foreign bonds’. For short- and medium-term debt capital needs the ‘Euronote market’ ensures relatively cheap financing for MNEs, because these instruments are publicly traded. On the debt side, there are often used international bank loans called ‘Eurocredits’, which are mostly syndicated between banks to share risks. Alternatively, firms can issue stocks via subsidiaries, which can be useful to broaden ownership and to give local administrations the opportunity to invest as required in some states (Ibid.). Both ways reduce the dependence on capital markets and are usually preferred if available (Shenkar/Lou/Chi 2015).īeyond that, we have classic equity financing which occurs normally through two ways: There is the possibility to ‘cross-list’ shares on foreign stock exchanges - usually via depositary receipts - which improves liquidity and increases the firm’s visibility in the local market. There is also the way of keeping higher levels of retained earnings. receiving finance from the parent company or from sister subsidiaries, both in the form of loans, trade credit, guarantees or equity. Intercompany financing relates to a reliance on ‘family’ funds, i.e. To obtain finance there are more and complex possibilities for a global corporation as (shown in figure 1) compared to a local operating enterprise. Furthermore, there exist the reliance on foreign tax rates as well as foreign assets, what is complementary useful because sales could be generated by a foreign subsidiary or just by selling abroad (Rasaei/Nguyen 2011). A MNEs is operating globally and 20% of its sales has to be from each of three different continents (ft.com 2017). 2 Fundamentals of International Financing for Corporationsīefore handling the cost and availability of capital in the international financing decision more deeply, MNEs are defined and their ways to achieve finance is presented. After that, the different types of cost of capital and the relating consequences for the company’s capital structure in an international surrounding are connected to discuss the relevant views in the financial literature. In order to prepare a sound discussion, there will be at first an overview of international financing possibilities for MNEs. In this paper, the question if Multinational Enterprises (MNEs) are able to accomplish a more favorable financing situation compared to their domestic counterparts will be examined. 4.2 Fundamentals of International Financing for Corporationsģ The Cost of capital and the optimal financing mix for MNEsįigure 2: CAPM and the required return on equity. The firm prefers securities with the least floatation cost. Some of the examples are underwriting commission, broken range stamp duty, etc. In the case of equity, floatation cost is low, and in the case of debt, floatation cost is high. Floatation Cost:įloatation cost refers to the cost, which is involved in the issue of securities. In the case of equity, the risk is low, and in the case of debt, the risk is high. The financial manager considers the risk involved with each source before taking a financing decision. The risk associated with different sources of finance is a different borrowed fund has a high degree of risk, as compared to the owners.
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