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The differential effects of agency costs on multinational corporations

Author

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  • Francis Wright
  • Jeff Madura
  • Kenneth Wiant

Abstract

This study develops arguments explaining why agency costs are more pronounced for firms with higher degrees of multinational business. Empirical tests are conducted to determine whether firms with more exposure to foreign markets have greater agency costs than less exposed firms. Specifically, valuation effects of security offerings are assessed cross-sectionally to determine whether the change in the firm's value attributed to agency costs is associated with the firm's degree of international business. It was found that valuation effects associated with security offering announcements are more negative for firms with higher degrees of international business, which supports the hypothesis presented. The results suggest that better monitoring could be especially beneficial to MNCs with large exposure to foreign markets.

Suggested Citation

  • Francis Wright & Jeff Madura & Kenneth Wiant, 2002. "The differential effects of agency costs on multinational corporations," Applied Financial Economics, Taylor & Francis Journals, vol. 12(5), pages 347-359.
    • Handle: RePEc:taf:apfiec:v:12:y:2002:i:5:p:347-359
    DOI: 10.1080/09603100210124984
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    Cited by:

    1. Benkraiem, Ramzi & Lakhal, Faten & Zopounidis, Constantin, 2020. "International diversification and corporate cash holding behavior: What happens during economic downturns?," Journal of Economic Behavior & Organization, Elsevier, vol. 170(C), pages 362-371.
    2. Akbel, Basak & Schnitzer, Monika, 2011. "Creditor rights and debt allocation within multinationals," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1367-1379, June.
    3. Jones, Edward & Kwansa, Nana Abena & Li, Hao, 2020. "How does internationalization affect capital raising decisions? Evidence from UK firms," Journal of Multinational Financial Management, Elsevier, vol. 57.
    4. Pinto, João M. & Silva, Cátia S., 2021. "Does export intensity affect corporate leverage? Evidence from Portuguese SMEs," Finance Research Letters, Elsevier, vol. 38(C).
    5. Chiung-Jung Chen & Chwo-Ming Joseph Yu, 2011. "FDI, Export, and Capital Structure," Management International Review, Springer, vol. 51(3), pages 295-320, June.
    6. Gyimah, Daniel & Kwansa, Nana Abena & Kyiu, Anthony K. & Sikochi, Anywhere (Siko), 2021. "Multinationality and capital structure dynamics: A corporate governance explanation," International Review of Financial Analysis, Elsevier, vol. 76(C).
    7. Shumi Akhtar & Barry Oliver, 2009. "Determinants of Capital Structure for Japanese Multinational and Domestic Corporations," International Review of Finance, International Review of Finance Ltd., vol. 9(1‐2), pages 1-26, March.
    8. Chiang, Yi-Chein & Ko, Chun-Lein, 2009. "An empirical study of equity agency costs and internationalization: Evidence from Taiwanese firms," Research in International Business and Finance, Elsevier, vol. 23(3), pages 369-382, September.
    9. Cappa, Francesco & Cetrini, Giorgio & Oriani, Raffaele, 2020. "The impact of corporate strategy on capital structure: evidence from Italian listed firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 379-385.

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