Convertible debt and asset substitution of multinational corporations
Document Type
Article
Publication Date
4-1-2021
Abstract
Internationalization enables multinational corporations (MNCs) to diversify their sources and types of debt, as well as earnings, although doing so can negatively impact firm risk and the agency costs of debt. Utilizing a primary sample of United States (US) based MNCs compared with domestic corporations (DCs), we find that MNCs are indeed riskier than DCs when considering systematic risk. Further, recognizing the heterogeneity of long-term debt, we find these MNCs consistently maintain a higher convertible debt ratio compared to DCs. We argue this is to mitigate the agency costs related to the asset substitution problem.
Keywords
Multinational corporations (MNCs), Domestic corporations (DCs), Convertible debt
Divisions
Faculty_of_Business_and_Accountancy
Funders
None
Publication Title
Journal of Corporate Finance
Volume
67
Publisher
Elsevier
Publisher Location
RADARWEG 29, 1043 NX AMSTERDAM, NETHERLANDS