- •Introduction
- •Investment Decisions
- •Capital Budgeting
- •Project and Parent Cash Flows
- •Economic Risk
- •Table 20.1
- •Financial Structure
- •Table 20.2
- •Global Money Management: the Tax Objective
- •Table 20.3
- •Reducing Transaction Costs
- •Moving Money Across Borders: Attaining Efficiencies and Reducing Taxes
- •Dividend Remittances
- •Royalty Payments and Fees
- •Transfer Prices
- •Benefits of Manipulating Transfer Prices
- •Problems with Transfer Pricing
- •Fronting Loans
- •Figure 20.1
- •Multilateral Netting
- •Figure 20.2a
- •Managing Foreign Exchange Risk
- •Translation Exposure
- •Economic Exposure
- •It may make sense to accelerate dividend payments from subsidiaries based in countries with weak currencies.
- •Reducing Economic Exposure
- •Developing Policies for Managing Foreign Exchange Exposure
- •Chapter Summary
- •Critical Discussion Questions
- •Closing Case
- •Accounts Receivable
- •Case Discussion Questions
Financial Structure
There is a quite striking difference in the financial structures of firms based in different countries. By financial structure we mean the mix of debt and equity used to finance a business. It is well known, for example, that Japanese firms rely far more on debt financing than do most US firms. Table 20.2 reproduces the results of a study comparing debt ratios for 677 firms in nine industries in 23 countries.7 As can be seen, there is wide variation in the average debt ratios of firms based in different countries. The average debt ratio of firms based in Italy, for example, is more than double that of firms based in Singapore.
|
Alcoholic |
Auto- |
|
|
|
Iron & |
Nonferrous |
|
|
Country |
|
Beverages |
mobiles |
Chemicals |
Electrical |
Foods |
Steel |
Metals |
Paper |
Textiles |
Mean |
Singapore |
|
.22 |
|
.57 |
.28 |
.28 |
.38 |
|
|
.34 |
Malaysia |
.20 |
.60 |
.41 |
|
.30 |
.38 |
.30 |
.77 |
.69 |
.37 |
Argentina |
|
.42 |
|
.44 |
.35 |
.32 |
|
|
|
.38 |
Australia |
.29 |
.50 |
.52 |
.51 |
.45 |
.53 |
.34 |
.48 |
.54 |
.46 |
Chile |
|
|
.33 |
.28 |
.70 |
.48 |
.50 |
.47 |
|
.46 |
Mexico |
.18 |
|
.47 |
.57 |
.59 |
.53 |
.47 |
.47 |
|
.47 |
South Africa |
.59 |
.50 |
.51 |
|
.46 |
.53 |
.32 |
.42 |
.69 |
.50 |
Brazil |
|
.66 |
.48 |
.53 |
.57 |
.61 |
|
.37 |
|
.54 |
United Kingdom |
.45 |
.73 |
.50 |
.60 |
.55 |
.51 |
.57 |
.56 |
.52 |
.55 |
United States |
.51 |
.58 |
.55 |
.54 |
.56 |
.54 |
58 |
.58 |
.50 |
.55 |
Benelux |
.41 |
.62 |
.60 |
.51 |
.64 |
.61 |
.49 |
.65 |
.54 |
.56 |
Canada |
.55 |
|
.45 |
.52 |
|
.69 |
.61 |
.68 |
|
.58 |
India |
.08 |
.75 |
.55 |
|
|
.49 |
.69 |
.74 |
.48 |
.60 |
Switzerland |
|
|
|
.63 |
.54 |
.64 |
|
|
|
.60 |
Germany |
|
.57 |
.56 |
.66 |
.49 |
.60 |
.70 |
.70 |
.65 |
.62 |
Denmark |
.66 |
|
.47 |
.74 |
.69 |
.52 |
.61 |
.74 |
|
.63 |
Spain |
|
.59 |
.64 |
.45 |
.66 |
.82 |
.70 |
.85 |
.43 |
.64 |
Sweden |
.79 |
.75 |
.67 |
.67 |
.63 |
.67 |
.64 |
.61 |
.60 |
.68 |
France |
.56 |
.67 |
.72 |
.72 |
.78 |
.73 |
.67 |
.74 |
.74 |
.71 |
Finland |
.40 |
.82 |
.71 |
.73 |
.77 |
.73 |
.72 |
.76 |
.82 |
.72 |
Pakistan |
|
.87 |
.87 |
|
|
|
.72 |
.66 |
.70 |
.72 |
Norway |
|
|
.76 |
.67 |
.79 |
.62 |
|
.82 |
.75 |
.74 |
Italy |
|
.49 |
.65 |
.79 |
.85 |
.87 |
.86 |
.77 |
.83 |
.76 |
Industry mean |
.49 |
.58 |
.56 |
.59 |
.62 |
.61 |
.58 |
.63 |
.70 |
|
Note: Debt ratio is defined as total debt divided by total assets at book value.
Source: W. S. Sekely and J. M. Collins, "Cultural Influences on International Capital Structure," Journal of International Business Studies 19 (1988), p. 91.