Abstract
ABSTRACT This study examines the effect of defining the country of destination of the international debt of Brazilian multinationals, based on the Upstream-Downstream hypothesis. To deepen the discussion of stability suggested by the theory, this paper inserted institutional variables of the target countries of internationalization in econometric models used by previous studies, testing whether the hypothesis Upstream-Downstream remains valid. Starting from a sample involving Brazilian publicly traded multinational and domestic companies between the years 2007 to 2011 and as a statistical method, we performed a regression with panel data. The results show that Brazilian companies when defining the destination countries of internationalization, regardless of these countries presenting higher or lower stability in relation to Brazil, increase their indebtedness. The results showed that among the characteristics present in countries considered as more stable, only the Corruption Perception Index was positively associated with the level of indebtedness of multinationals.
Highlights
According to the United Nations Conference on Trade and Development (UNCTAD), multinational companies from emerging countries are increasingly gaining notoriety in the international scenario, and in Brazil the flows of direct investments abroad grew about 88% in the period from 2007 to 2012 (UNCTAD, 2014).Due to the growing internationalization movement, studies such as by Shapiro (1978), Lee and Kwok (1988) and Burgmann (1996) investigated multinationals from a financial point of view, focusing on indebtedness, reporting that these companies develop their activities in a reality different from that of domestic firms.relevant and controversial issues in corporate finance, such as capital structure associated with strategies and forms of indebtedness, are investigated in an environment of internationalization
Companies based in markets classified as “less stable”, reduced the risk of the business and perceived an increase in the level of indebtedness (Upstream effect). They observed that for companies in the United States, considered as a “more stable” country, internationalization would provide greater risks and there would be a reduction in corporate leverage, when compared to local counterparts (Downstream Effect). These evidence contributed to the advances of the studies on capital structure of multinationals and for this reason they became known as the Upstream-Downstream hypothesis
The model we developed was based on the state of the art in which we find the Upstream-Downstream hypothesis, initiated with the work by Kwok and Reeb (2000), being corroborated Singh and Nejadmalayeri (2004), Mittoo and Zhang (2008), Saito and Hiramoto (2010) and Pereira (2013)
Summary
According to the United Nations Conference on Trade and Development (UNCTAD), multinational companies from emerging countries are increasingly gaining notoriety in the international scenario, and in Brazil the flows of direct investments abroad grew about 88% in the period from 2007 to 2012 (UNCTAD, 2014). Research on the subject do not yet present conclusive results, such as Kwok and Reeb (2000), Saito and Hiramoto (2010) and Aybar and Thanakijsombat (2015) In this regard, we can observe that the studies that insert the variable internationalization in the traditional models of capital structure have pointed in opposite directions. We note that, in some studies, internationalization has had a positive effect on indebtedness (SINGH; NEJADMALAYERI, 2004; MITTOO; ZHANG, 2008; SAITO; HIRAMOTO, 2010), and on the other hand, we noted that some studies have pointed in the opposite direction, evidencing a negative effect (BURGMAN, 1996; CHEN et al, 1997) In this regard, Kwok and Reeb (2000) deepened in the investigation on the capital structure of internationalized companies and found that US multinationals had a lower level of indebtedness compared to their local counterparts, termed as domestic companies. This paper intends to mitigate the existing theoretical gap in the financial literature on the capital structure of multinationals, contributing to the advancement of the Upstream-Downstream hypothesis, through the empirical verification of the performance of multinationals from an emerging country, as analyzed in Brazil
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