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Discussion Paper Discussion Paper 102 (2006.08)

[No.102] Capital Structure Choice of the Foreign Affiliates of Japanese Multinational Firms–Characteristics and Problems

YonezawaYasuhiro/Waseda University
   
YamaguchiHiroshi/Komazawa University
   
YamamotoTakeshi/Yokohama National University
   
NambuTomonari/METI
   

2006/08/13

Abstract

 In this paper, we compare and analyze capital structure strategies of foreign affiliates among Japanese and U.S. multinational firms in terms of efficiency of the internal capital markets. A hypothesis is that foreign affiliates of multinational firms rely more on external borrowing in well developed capital markets, and on internal borrowing otherwise. Despite the limitation with respect to the data, our research revealed that Japanese multinationals allocate the fund efficiently by utilizing internal capital markets to the same extent as U.S. counterpart do. However, they heavily rely on financing from their parent companies and Japanese banks, and diversification of the source of fund seems to be insufficient.