Investment, Financing Constraints, and Internal Capital Markets: Evidence from the Advertising Expenditures of Multinational Firms

2007 ◽  
Author(s):  
C. Edward Fee ◽  
Charles J. Hadlock ◽  
Joshua R. Pierce
Keyword(s):  
Capital Markets ◽  
Multinational Firms ◽  
Internal Capital Markets ◽  
Financing Constraints ◽  
Investment Financing ◽  
Internal Capital

scholarly journals Multinational Firms, Internal Capital Markets, and the Value of Global Diversification

2016 ◽  
Vol 06 (02) ◽  
pp. 1650004 ◽  
Author(s):  
Jason Sturgess
Keyword(s):  
Foreign Direct Investment ◽  
Capital Markets ◽  
Direct Investment ◽  
Multinational Firms ◽  
Internal Capital Markets ◽  
The Past ◽  
Internal Capital ◽  
Global Diversification

Over the past 30 years, multinational firms’ investment grew four times faster than worldwide GDP. Yet the evidence on whether global diversification is valuable is inconclusive. This paper uses detailed foreign direct investment (FDI) data for 251 UK multinational firms and 4,676 subsidiaries for the period 1999–2005 to show that multinational firms exhibit, on average, a global diversification premium. I investigate this result and show that the premium is positively related to “winner-picking” transfers in internal capital markets, and more so for better-governed firms. The findings help explain why multinational firms’ investment and global diversification have significantly increased over the past three decades.

scholarly journals Corporate Financial Constraints and Internal Capital Markets: Evidence from Emerging Countries

2016 ◽  
Vol 6 (1) ◽  
pp. 25 ◽  
Author(s):  
Mine Ugurlu ◽  
Ayse Altiok-Yilmaz ◽  
Elif Akben-Selcuk
Keyword(s):  
Capital Markets ◽  
Financial Constraints ◽  
Trade Credit ◽  
Business Groups ◽  
Emerging Countries ◽  
Internal Capital Markets ◽  
Financing Constraints ◽  
Positive Relation ◽  
Internal Capital ◽  
Cash Flow Sensitivity

This paper investigates whether the internal capital markets of business groups mitigate the financial constraints of affiliated firms,and affect their financing policies.It aims to extend the evidence on internal capital markets to emerging countries where financing constraints are prevalent, and adds to the literature on trade credit by revealing that the distressed group-affiliated firms rely less on trade credit than their non-affiliated counterparts despite the positive relation between trade credit and distress. Group firms that have high investments in prior periods use less trade credit in the subsequent periods than non-affiliated firms. The study rests on panel data regressions covering 3906 firms from six emerging countries for the 2006-2012 period. The findings indicate that the Q-sensitivity of the investments of affiliated firms is lower than that of their unaffiliated counterparts in all countries and that the investment cash flow sensitivity of affiliates is lower in five countries, strongly indicating that group-affiliated firms are financially less constrained. The distressed group firms use significantly lower leverage than distressed unaffiliated firms despite the positive relation between distress and leverage. Group firms in high–Q industries invest less than unaffiliated firms. This paper contributes to the existing literature on internal capital markets by expanding the scope to emerging countries where market imperfections and financing constraints are more pronounced, and provides strong evidence for the role of business groups, prevalent in most emerging countries, in mitigating the constraints on the investments and financing choices of the group-affiliated firms. 

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