Multinational Financing Strategies in High Political Risk Countries

Abstract

This paper investigates the importance of various issues in relation to the financing of U.K. and U.S. multinationals' subsidiaries in high political risk countries. It is discovered that multinationals with operations in high risk countries adopt strategies which are nationally responsive to the host nation. The matching of assets with liabilities is considered to be an effective method for reducing exchange rate risk and political risk. Local debt is viewed as crucial to the management of political risk by harnessing local participants in the ownership structure of the firm. In addition, it is found that firms with operations in high risk countries tend to be relatively less centralised. Although, expropriation of multinationals' overseas assets has become a past occurrence, multinationals need to recognise the time-varying nature of political risks that they encounter.