TY - JOUR
T1 - Convertible debt and asset substitution of multinational corporations
AU - Batten, Jonathan A.
AU - Khaw, Karren Lee-Hwei
AU - Young, Martin R.
N1 - Funding Information:
We appreciate helpful comments and suggestions from the Editor Douglas Cumming and two anonymous reviewers, Hamish Anderson, Alastair Marsden, Jay Ritter, Ralph Walkling, Jin-Xin Wang, and participants at the 2016 AIB Conference, New Orleans, Louisiana, USA, 2015 FMA Asia Conference, Seoul, Korea, MFA Conference, Kuala Lumpur, Malaysia, and seminar presentations at Massey University, Palmerston North New Zealand.
Publisher Copyright:
© 2020 Elsevier B.V.
PY - 2021/4
Y1 - 2021/4
N2 - 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.
AB - 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.
UR - https://www.scopus.com/pages/publications/85100651674
U2 - 10.1016/j.jcorpfin.2020.101843
DO - 10.1016/j.jcorpfin.2020.101843
M3 - Article
AN - SCOPUS:85100651674
SN - 0929-1199
VL - 67
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
M1 - 101843
ER -