MNE SPECIFIC FACTORS OF CORPORATE CAPITAL STRUCTURE: COMPARATIVE ANALYSIS IN TERMS OF FINANCIAL RESOURCES DEMAND AND SUPPLY

Abstract

This paper investigates corporate capital structure of multinational enterprises. Its core subject is focused on corporate capital structure defining factors that are specific for MNE rather than for domestic corporations. Substantial part of scientific literature concentrates on country specific and firm specific factors of corporate capital structure with most research devoted to domestic corporations. The main goal of our paper is to discover among plenty of corporate capital structure factors those that are specific for MNE and to develop a new approach for analyzing these factors in terms of financial resources demand and supply. There are some corporate capital structure factors that influence directly and some that have indirect influence while there is also another set of factors having both direct and indirect influence on indebtedness. Different theoretical and empirical research confirm different directions. Methodology of our study is based on analysis of two fundamental market driving forces that are demand and supply. Their influence on corporate capital structure is of a primary origin and that is why the suggested approach is to our mind theoretically significant and practically important. Demand factors imply that a corporation creates demand for financial resources and its capital structure is defined internally. Supply factors imply an external capital structure since it is created by external investors’ supply of financial resources. On empirical level, we use the primary data of corporate financial statements to analyze the leverage of MNE based in different countries and representing different industries. The key results of our study show that the main MNE specific factors of capital structure include such demand factors as multinationality level, assets tangibility and political risk. The first two are firm specific factors that can influence corporate capital structure either directly or indirectly according to different theories and empirical studies. Political risk is a country specific factor which affects MNE indebtedness level directly. Exchange rate risk is another factor of MNE capital structure substantial influence. It can be either demand or supply factor that brings mostly to indirect influence on corporate indebtedness level. These factors obviously affect domestic corporations capital structure as well but to a much lesser extent. We also consider a set of behavioral factors to be essential for MNEs though they also affect domestic corporations.