Convertible debt and asset substitution of multinational corporations

Batten, Jonathan A. and Khaw, Karren Lee-Hwei and Young, Martin R. (2021) Convertible debt and asset substitution of multinational corporations. Journal of Corporate Finance, 67. ISSN 0929-1199, DOI

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Internationalization enables multinational corporations (MNCs) to diversify their sources and types of debt, as well as earnings, although doing so can negatively impact firm risk and the agency costs of debt. Utilizing a primary sample of United States (US) based MNCs compared with domestic corporations (DCs), we find that MNCs are indeed riskier than DCs when considering systematic risk. Further, recognizing the heterogeneity of long-term debt, we find these MNCs consistently maintain a higher convertible debt ratio compared to DCs. We argue this is to mitigate the agency costs related to the asset substitution problem.

Item Type: Article
Funders: None
Uncontrolled Keywords: Multinational corporations (MNCs); Domestic corporations (DCs); Convertible debt
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Business and Economics
Depositing User: Ms Zaharah Ramly
Date Deposited: 05 Apr 2022 07:47
Last Modified: 05 Apr 2022 07:47

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