The effects of the cost of foreign internal funds on firms' financing choice of debt vs. internal funding

Persistent Link:
http://hdl.handle.net/10150/289863
Title:
The effects of the cost of foreign internal funds on firms' financing choice of debt vs. internal funding
Author:
Albring, Susan M.
Issue Date:
2003
Publisher:
The University of Arizona.
Rights:
Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
Abstract:
This paper examines how the multinational firm's choice of debt or internal funds as a method of financing depends upon the cost of using internal funds. I extend prior research by differentiating between the cost of using domestic versus foreign internal funds for additional investments for multinational enterprises. I predict that foreign funds are more costly than domestic funds because of potential differential costs, including repatriation tax costs and financial reporting costs. I find that my measure of total funds, the sum of cash and short-term receivables, is negatively related to issuing incremental debt. I also examine whether the proportion of total funds represented by foreign funds affects a firm's decision to use incremental debt financing. My proxy for foreign funds is a rough estimate using available Compustat data (foreign assets divided by total assets multiplied by total funds). I do not find significant results with this general measure of foreign funds. Additionally, I test whether firms' FTC positions affect incremental financing decisions. I do not find results with this measure of foreign funds. I further examine the impact of costly foreign funds on the incremental debt financing decision using alternative measures. I examine the differential costs of a subset of foreign funds with the designation and dollar level of permanently reinvested earnings. My results suggest that the change in debt is positively related to the dollar level of permanently reinvested earnings. In addition, in a model that includes the interaction between the dollar level of permanently reinvested earnings and non-binding FTC status, my results suggest that the magnitude of the relationship between the level of permanent reinvestment of foreign earnings and incremental debt financing is greater for firms with non-binding FTC limitations than for firms with binding FTC limitations. Overall, my findings suggest that the source of internal funds makes a difference in firms' use of debt financing. After controlling for investment opportunities with a measure of the difference between the foreign and domestic after-tax return, I find that financial reporting considerations impact the debt (versus internal funds) financing decision.
Type:
text; Dissertation-Reproduction (electronic)
Keywords:
Business Administration, Accounting.
Degree Name:
Ph.D.
Degree Level:
doctoral
Degree Program:
Graduate College; Business Administration
Degree Grantor:
University of Arizona
Advisor:
Dhaliwal, Dan S.

Full metadata record

DC FieldValue Language
dc.language.isoen_USen_US
dc.titleThe effects of the cost of foreign internal funds on firms' financing choice of debt vs. internal fundingen_US
dc.creatorAlbring, Susan M.en_US
dc.contributor.authorAlbring, Susan M.en_US
dc.date.issued2003en_US
dc.publisherThe University of Arizona.en_US
dc.rightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.en_US
dc.description.abstractThis paper examines how the multinational firm's choice of debt or internal funds as a method of financing depends upon the cost of using internal funds. I extend prior research by differentiating between the cost of using domestic versus foreign internal funds for additional investments for multinational enterprises. I predict that foreign funds are more costly than domestic funds because of potential differential costs, including repatriation tax costs and financial reporting costs. I find that my measure of total funds, the sum of cash and short-term receivables, is negatively related to issuing incremental debt. I also examine whether the proportion of total funds represented by foreign funds affects a firm's decision to use incremental debt financing. My proxy for foreign funds is a rough estimate using available Compustat data (foreign assets divided by total assets multiplied by total funds). I do not find significant results with this general measure of foreign funds. Additionally, I test whether firms' FTC positions affect incremental financing decisions. I do not find results with this measure of foreign funds. I further examine the impact of costly foreign funds on the incremental debt financing decision using alternative measures. I examine the differential costs of a subset of foreign funds with the designation and dollar level of permanently reinvested earnings. My results suggest that the change in debt is positively related to the dollar level of permanently reinvested earnings. In addition, in a model that includes the interaction between the dollar level of permanently reinvested earnings and non-binding FTC status, my results suggest that the magnitude of the relationship between the level of permanent reinvestment of foreign earnings and incremental debt financing is greater for firms with non-binding FTC limitations than for firms with binding FTC limitations. Overall, my findings suggest that the source of internal funds makes a difference in firms' use of debt financing. After controlling for investment opportunities with a measure of the difference between the foreign and domestic after-tax return, I find that financial reporting considerations impact the debt (versus internal funds) financing decision.en_US
dc.typetexten_US
dc.typeDissertation-Reproduction (electronic)en_US
dc.subjectBusiness Administration, Accounting.en_US
thesis.degree.namePh.D.en_US
thesis.degree.leveldoctoralen_US
thesis.degree.disciplineGraduate Collegeen_US
thesis.degree.disciplineBusiness Administrationen_US
thesis.degree.grantorUniversity of Arizonaen_US
dc.contributor.advisorDhaliwal, Dan S.en_US
dc.identifier.proquest3089902en_US
dc.identifier.bibrecord.b44417494en_US
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