Creditor Rights and Debt Allocation within Multinationals

Akbel, Basak and Schnitzer, Monika (November 2009): Creditor Rights and Debt Allocation within Multinationals. SFB/TR 15 Discussion Paper No. 304

Abstract

We analyze the optimal debt structure of multinational corporations choosing between centralized or decentralized borrowing. We identify how this choice is affected by creditor rights and bankruptcy costs, taking into account managerial incentives and coinsurance considerations. We find that partially centralized borrowing structures are optimal with either weak or strong creditor rights. For intermediate levels of creditor rights fully decentralized (centralized) borrowing structures are optimal if managers have strong (weak) empire building dencies. Decentralized borrowing is more attractive for companies focussing on short-term profitability. Credits are rather taken in countries with better creditor rights and more efficient insolvency systems.

• Item Type: Paper
• Keywords: Multinational corporations, capital structure, creditor rights, coinsurance, internal capital markets
• Faculties: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > B7 - Globalisierung und der Anstieg der Vorstandsbezüge; Economics; Economics > Chairs > Seminar for Comparative Economics
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: G32, F23
• Language: English