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The Impact Of Financing Sources On Multinational Projects

Author

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  • Jeff Madura
  • Richard H. Fosberg

Abstract

It is shown here that market imperfections, such as corporate taxes, are not a necessary condition for a firm to have a debt denomination preference. When the stochastic nature of project cash flows and exchange rates are explicitly considered, the risk of the project is affected by the source of borrowing used to finance the project. It is also shown that the existence of income taxes causes the expected net present value and risk of a foreign project to depend on the source of the firm's borrowing. The debt denomination preference in both cases depends on project‐ and country‐specific variables.

Suggested Citation

  • Jeff Madura & Richard H. Fosberg, 1990. "The Impact Of Financing Sources On Multinational Projects," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 13(1), pages 61-69, March.
    • Handle: RePEc:bla:jfnres:v:13:y:1990:i:1:p:61-69
    DOI: 10.1111/j.1475-6803.1990.tb00536.x
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    Cited by:

    1. Joliet, Robert & Muller, Aline, 2013. "Capital structure effects of international expansion," Journal of Multinational Financial Management, Elsevier, vol. 23(5), pages 375-393.
    2. Vander Linden, David, 2005. "Denomination of currency decisions and zero-cost options collars," Journal of Multinational Financial Management, Elsevier, vol. 15(1), pages 85-98, February.

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