Affiliates’ Bank Debt Policy: Does Parent Firm Nationality Matter?

This paper examines whether and how bank debt is affected by foreign group affiliation. Ceteris paribus, affiliates of foreign business groups only use about half as much bank debt compared to affiliates of domestic groups. Further, the results indicate that geographical and cultural distance between parent and affiliate countries raise barriers when accessing bank financing. The bank debt usage decreases even further if affiliates and parent firms depend on different legal systems or the degree of legal enforcement in the parent firm's country is low.