Abstract
This paper attempts to capture the similarities and differences in the corporate financial behavior of Indian MNCs. The primary information has been collected through responses of senior financial executives of identified Indian MNCs on a questionnaire developed on well-known Duke Special Survey on Corporate Financial Policies (Graham & Harvey, 2001) with addition of twelve questions to comprehensively cover various aspects of corporate financial practices by Indian MNCs. Though results indicate similarities to a large extent in investment, financing, management control and dividend practices but significant differences are also observed in practices. The results support previous studies in corporate financial behavior of companies exhibiting differences in their practices due to their size and industry characteristics. It further extends to identifying differences in their behavior attributable to differences in multi-nationality rank, number of foreign subsidiaries and foreign equity holdings. Keywords: Corporate financial behavior, MNC finance
Highlights
India has seen the emergence of Indian MNCs a decade after the financial sector reforms, with the improvement in the financial resources of many of these companies
Based on analysis of variance (ANOVA) statistics appearing in Appendix 1, it is observed that there is similarity in the techniques or importance attached to various factors affecting investment decisions of Indian MNCs in their preference for use of capital budgeting techniques, method of estimating cost of equity capital, risk factors considered for adjusting the discount rates for valuation of projects, use of discount rates for evaluating a new project in the overseas market, in the preferred mode of foreign investment, and in the use of methods for valuation of merger/ acquisition/ takeover candidate
The differences in practices attributable to industry affects is seen in the use of IRR as a capital budgeting technique, preference for the use of CAPM for arriving at cost of capital, considering use of debt in capital structure when equity is undervalued by market or there is delay in retirement of debt for the reasons of recapitalization costs
Summary
India has seen the emergence of Indian MNCs a decade after the financial sector reforms, with the improvement in the financial resources of many of these companies. Financial strategy adopted by a MNC can provide competitive advantage through low cost of funds and flexibility to raise capital to support a business strategy. Functional Strategy provides a blueprint of how financial activities will be managed in supporting business strategy & achieving the financial department’s objectives & missions. As the emergence of Indian MNCs is relatively a recent phenomenon, there are many areas that need to be explored to understand the nature of decision making, evolving management structures and nature of financial policies and practices required to successfully execute the strategies in the complex and dynamic international environment. Recent maturing of some of the Indian companies in establishing international presence prompted us to undertake this study to understand the practices and linkages of financial decisions of Indian MNCs at the corporate, business & functional level.
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