The Effect of the Degree of Internationalization on Capital Structure for Listed Multinational Corporations in Taiwan during the Asian Financial Crisis

Abstract

This paper examines the effect of the degree of internationalization on capital structure for multinational corporations (MNCs) in Taiwan during the Asian financial crisis in 1997 by using dummy variables in a multiple regression analysis. The results show that: (1) For the IT industry, the higher the internationalization is, the higher the leverage will be, but it is the reverse for the NIT industry. (2) There is an industry effect on tangible assets, sales size, return on total assets, current ratio, and the times of interest earned, while the collateral value of assets is more significant for the NIT industry than the IT industry when MNCs make capital structure decisions. (3) There is an internationalization effect on the collateral value of assets, profitability, and liability payment ability. For low-internationalized MNCs, firm size and profitability are the important capital structure determinants, but for high-internationalized MNCs, the collateral value of assets is a key element of leverage decisions. (4) The liquidity risk caused by the Asian financial crisis allows the collateral value of assets and liability payment ability be the important determinants when MNCs make capital structure decisions. Finally, the results also express that international outsourcing and international financing play a somewhat important role for the IT industry during successive industry development.