Multinational Affiliates and Local Financial Markets

Lehmann, Alexander; Sayek, Selin; Kang, Hee-Gyoo

doi:10.2139/ssrn.584941

Cited by 24 publications

(24 citation statements)

References 18 publications

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“…5 As pointed out by an anonymous referee, this option is available only to affiliates with revenues in the host market. This was indeed the case for most US foreign affiliates, with about 65% of their sales over the 1983-2004 period being local (Beugelsdijk, Pedersen, & Petersen, 2009;Lehmann et al, 2004). 6 The BEA defines a US foreign affiliate as ''a foreign business enterprise in which there is US direct investment; that is, it is a foreign business enterprise that is directly or indirectly owned or controlled by one US person to the extent of 10% or more of the voting securities for an incorporated business enterprise or an equivalent interest for an unincorporated business enterprise'' (US Bureau of Economic Analysis, 2004: M5-M6).…”

Section: Models 3a and 3b Inmentioning

confidence: 76%

“…Such locally raised external funds are not included in FDI stock and flow data (Kogut & Chang, 1991;Root, 1994), yet the extent to which MNE affiliates are financed with locally raised external equity and debt is substantial, and varies across host countries. Such funds account for 39.6% of the total financing of US majority-owned affiliates in developed countries, and for only 30% in developing countries (Lehmann, Sayek, & Kang, 2004).…”

Section: Locally Raised External Fundsmentioning

confidence: 99%

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Why and how FDI stocks are a biased measure of MNE affiliate activity

et al. 2010

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General rightsCopyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights.-Users may download and print one copy of any publication from the public portal for the purpose of private study or research -You may not further distribute the material or use it for any profit-making activity or commercial gain -You may freely distribute the URL identifying the publication in the public portal Take down policyIf you believe that this document breaches copyright, please contact us providing details, and we will remove access to the work immediately and investigate your claim. AbstractMany international business (IB) studies have used foreign direct investment (FDI) stocks to measure the aggregate value-adding activity of multinational enterprises (MNE) affiliates in host countries. We argue that FDI stocks are a biased measure of that activity, because the degree to which they overestimate or underestimate affiliate activity varies systematically with host-country characteristics. First, most FDI into countries that serve as tax havens generate no actual productive activity; thus FDI stocks in such countries overestimate affiliate activity. Second, FDI stocks do not include locally raised external funds, funds widely used in countries with well-developed financial markets or volatile exchange rates, resulting in an underestimation of affiliate activity in such countries. Finally, the extent to which FDI translates into affiliate activity increases with affiliate labor productivity, so in countries where labor is more productive, FDI stocks also result in an underestimation of affiliate activity. We test these hypotheses by first regressing affiliate value-added and affiliate sales on FDI stocks to calculate a country-specific mismatch, and then by regressing this mismatch on a host country's tax haven status, level of financial market development, exchange rate volatility, and affiliate labor productivity. All hypotheses are supported, implying that FDI stocks are a biased measure of MNE affiliate activity, and hence that the results of FDI-data-based studies of such activity need to be reconsidered.

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Section: Models 3a and 3b Inmentioning

confidence: 76%

Section: Locally Raised External Fundsmentioning

confidence: 99%

Why and how FDI stocks are a biased measure of MNE affiliate activity

et al. 2010

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“…We prefer here to include a dummy variable capturing the ownership structure, which enables us to directly compare the behaviour of both types of affiliates. 13 Lehmann et al (2004) examine the role of borrowing from the capital market of the host economy. Tax rate is the statutory corporate income tax rate.…”

Section: International Debt Shifting: Oecd Countriesmentioning

confidence: 99%

Debt financing and sharp currency depreciations: wholly versus partially-owned multinational affiliates

Hebous

Weichenrieder

2010

Rev World Econ

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This paper provides empirical evidence on two potential costs of shared ownership of German affiliates abroad. First, in periods of currency crises, whollyowned affiliates, in contrast to partially-owned affiliates, seem to circumvent financial constraints by accessing capital from their parent companies. In terms of differences in performance regarding sales of both types of firms, wholly-owned affiliates have a significantly better sales performance than partially-owned affiliates in periods of crises. This finding contributes to the evidence that FDI helps in mitigating the negative consequences of sharp currency depreciation, and stresses that this effect works especially through capital inflows to wholly-owned affiliates. Second, the debt financing of partially-owned affiliates is less sensitive to the tax rate suggesting that partially-owned affiliates rely less on international debt shifting than wholly-owned affiliates. This indicates that partially-owned affiliates are less flexible to exploit tax efficient strategies.

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“…These aspects make FDI closer to portfolio debt flows that can fluctuate in the short term (Blanchard and Acalin 2016). Hence, countries have to be cautious about expanding their share of these flows without a deeper understanding of their interaction with other flows and the effects on stability (Lehmann, Sayek, and Kang 2004;Wu 2009;and Brukoff and Rother 2007).…”

Section: Introductionmentioning

confidence: 99%