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

Author

Listed:
  • Hsien-Chang Kuo

    (Department of Banking and Finance, National Chi-Nan University, Puli, Nantou 545, Taiwan, ROC;
    Department of Finance, Takming College, Neihu, Taipei 114, Taiwan, ROC)

  • Lie-Huey Wang

    (Department of Finance, Ming Chuan University, Taipei 111, Taiwan, ROC)

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.

Suggested Citation

  • Hsien-Chang Kuo & Lie-Huey Wang, 2005. "The Effect of the Degree of Internationalization on Capital Structure for Listed Multinational Corporations in Taiwan during the Asian Financial Crisis," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 8(03), pages 447-466.
    • Handle: RePEc:wsi:rpbfmp:v:08:y:2005:i:03:n:s0219091505000464
    DOI: 10.1142/S0219091505000464
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    Citations

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    Cited by:

    1. Wulung Li & Ramachandran Natarajan & Yan Zhao & Kenneth Zheng, 2021. "The effect of management control mechanisms through risk-taking incentives on asymmetric cost behavior," Review of Quantitative Finance and Accounting, Springer, vol. 56(1), pages 219-243, January.
    2. João Teixeira, 2014. "Outsourcing with long term contracts: capital structure and product market competition effects," Review of Quantitative Finance and Accounting, Springer, vol. 42(2), pages 327-356, February.
    3. Dev Prasad & Yash R. Puri & Ravi Jain, 2015. "Return to Profitabiolity after a Financial Crisis," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 9(1), pages 89-101.

    More about this item

    Keywords

    Capital structure; multinational corporations (MNCs); degree of internationalization; Asian financial crisis in 1997;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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