Capital Structure of Foreign Affiliates and the Investment Decision: Two Questions to Consider

Journal of Business Economics and Management, vol. 14, pages S470-S492 DOI:10.3846/16111699.2012.692704

Posted: 16 Feb 2013 Last revised: 27 Dec 2013

See all articles by Fernando Merino

Fernando Merino

University of Murcia - Department of Applied Economics

Date Written: February 15, 2013

Abstract

This paper analyses the ownership structure of foreign affiliates of Spanish firms. In contrast to previous studies on the participation degree, the paper highlights the importance of the previous decision to invest abroad. To do so, an econometric model with a limited dependent variable helps to show that to ignore the previous decision modifies the conclusions of the empirical analyses that raise an empirical model over a sample of firms with foreign affiliates. Additionally, the paper analyses in detail the importance of the cultural and political-legal differences between home and host countries that justify a different type of participation in equity of foreign affiliates. Results show the importance of the econometric approach given that results differ notably from the ones that traditional econometric models provides.

Keywords: foreign affiliates, equity structure, multinational firms, double-hurdle

JEL Classification: F23, G32, F21, D23, L24

Suggested Citation

Merino, Fernando, Capital Structure of Foreign Affiliates and the Investment Decision: Two Questions to Consider (February 15, 2013). Journal of Business Economics and Management, vol. 14, pages S470-S492 DOI:10.3846/16111699.2012.692704, Available at SSRN: https://ssrn.com/abstract=2218214

Fernando Merino (Contact Author)

University of Murcia - Department of Applied Economics ( email )

Campus Espinardo
30100 Murcia
Spain

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