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Cross-Border Liability of Multinational Enterprises, Border Taxes, and Capital Structure

Author

Listed:
  • Kose John
  • Lemma W. Senbet
  • Anant K. Sundaram

Abstract

Under incomplete contracting, limited liability creates differential valuations of investments from private and government perspectives. Managers in the private sector tend to over-invest in risky technologies, compared to levels of investment that are optimal from the standpoint of the society as a whole. This problem is exacerbated from the point of view of the host government when a multinational enterprise (MNE) engages in cross-border investments but faces incomplete cross-border liability, since there is the likelihood of localization of costs and globalization of benefits. This paper explores financial management implications of policies for the MNE and derives some empirically testable predictions.

Suggested Citation

  • Kose John & Lemma W. Senbet & Anant K. Sundaram, 1991. "Cross-Border Liability of Multinational Enterprises, Border Taxes, and Capital Structure," Financial Management, Financial Management Association, vol. 20(4), Winter.
    • Handle: RePEc:fma:fmanag:john91
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    Cited by:

    1. Suman Banerjee & Thomas H. Noe, 2017. "Legal-System Arbitrage and Parent–Subsidiary Capital Structures," Management Science, INFORMS, vol. 63(11), pages 3809-3828, November.
    2. Douglas Cumming & Florencio Lopez-de-Silanes & Joseph A McCahery & Armin Schwienbacher, 2020. "Tranching in the syndicated loan market around the world," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(1), pages 95-120, February.
    3. Teresa John & Lemma Senbet & Anant Sundaram & Peter Woodward, 2005. "Limited Liability and Market Power," Review of Quantitative Finance and Accounting, Springer, vol. 25(3), pages 215-231, November.
    4. Shao, Lawrence Peter, 1997. "Capital structure norms among foreign subsidiaries of U.S. multinational enterprises," Global Finance Journal, Elsevier, vol. 8(1), pages 145-157.

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