Do Multinational Corporations and Domestic Corporations Differ in Leverage Policies?

Abstract

This study examines the leverage policies of multinational corporations (MNCs) in comparison to those of domestic corporations (DCs). Prior studies document that MNCs have relatively low leverage levels. However, our analysis of U.S. firms over the period 1982-2006 reveals that the leverage levels of MNCs are not significantly lower than those of DCs if we control for key firm characteristics. In addition, MNCs and DCs do not differ significantly in the debt maturity structure. We also find that MNCs and DCs do not differ significantly in terms of the speed of leverage adjustments or the propensity to issue debt vs. equity (or vs. not to issue debt). While prior studies document that MNCs’ financial policies at the subsidiary level are influenced by market imperfections such as taxes and regulations, our findings suggest that their leverage policies at the corporate level are not significantly different from those of DCs. Interestingly, however, our additional analysis of MNCs from outside the U.S. reveals that non-U.S. MNCs issue securities more frequently and adjust leverages faster than their domestic peers do.