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AFIN 8008 & 7008 Assignment Instruction
Due Date
The due date of this assignment is 23:59 Friday 16 October 2020.
Academic Honesty
This is an individual assignment. Students are expected to work independently on the
assignment tasks. The similarity of assignment answers will be checked in Turnitin. Any
plagiarism, collusion and other dishonest behaviour will be penalized subject to the university
Academic Integrity Policy. You are highly recommended:
• not to share your document by any means with another student,
• not to attend any private tutoring session on this assignment, and
• not to use any assignment help service from a third party.
The teaching team is keen to help. Please do not hesitate to contact lecturers for support.
Assignment Tasks
In this assignment, you will research the topic on corporate financing decisions of multinational
firms and write a research report to answer the following 3 (or 4) questions:
1. Based on the capital structure theories, discuss how firms make financing decisions. In
general, what are major factors to consider when making capital structure decisions?
For multinational firms, what are the additional factors to consider when marking
financing decisions? You can base your discussion on the research paper “The
Corporate Finance of Multinational Firms”. You can download the paper from SSRN
at https:
papers.ssrn.com/sol3/papers.cfm?abstract_id= XXXXXXXXXXor from iLearn.
2. Find a real corporate financing case of a multinational firm and demonstrate how the
multinational firm raise capital in practice. Discuss whether it is consistent with capital
theories or not and explain why or why not. What are the obstacles (e.g., government
interventions) confronting the capital raising of the multinational firm? Note: in your
discussion, you should first
iefly describe the case. You can use some data from
corporate financial report, press release, earnings conference call and some charts to
support your arguments.
https:
papers.ssrn.com/sol3/papers.cfm?abstract_id=3535761
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3. Discuss how the rise of nationalism will affect the international financial markets and
corporate financing decisions of both domestic and multinational firms.
4. What will likely to be the trend post COVID-19 crisis? (Additional question for Master
of Research student only.)
Assignment Presentation Requirements:
1. Use Portrait orientation.
2. Use Times New Roman font, size 12 points.
3. Use 1.5 spacing.
4. Use A4 paper.
5. Maximum 1, 500 words. Tables, diagrams, and the reference list are not included in
word count. You may exceed the word count by 10%. Please DO NOT attach any
appendix to your assignment and DO NOT show unnecessary workings (e.g., a fully
page Excel model) in your assignment.
6. Make sure to edit your assignment before submitting. The font, size, alignment, line
space must be consistent throughout. Tables and diagrams should be numbered and
captioned. You are expected to use tables and diagrams to summarize or emphasize
findings but the information in a table/diagram must be refe
ed to and clearly explained
in-text.
7. Referencing: Make sure to acknowledge your data resources appropriately. Citations
and the reference list must be prepared following Harvard style referencing.
The report must contain the following:
1. Cover page - including course name, day and time of your class, title of report, student’s
full name and student ID.
2. Section 1. Introduction - Provide a road map of how the essay is structured.
3. Body - Include at least 3 (or 4) sections to answer the 3 (or 4) questions that are listed
in the assignment tasks. Use section headings, such as Section 2. Capital Structure
determinants, Section 3. Case study, and Section 4. Future trends.
4. Section 5. Conclusion - This is not a summary, but states some of the key issues you
have found from the research and why it is important to managing firms.
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5. Bibliography
Submission
The assignment must be submitted via Turnitin before 23:59 Friday 16 October 2020.
No extensions will be granted. There is penalty for late submission. 10%-mark deduction for
each 24-hour period delay. For example, 20% penalty applies if late by 25 hours after the due
date of submission. This penalty does not apply for cases in which an application for special
consideration is made and approved. No submission will be accepted after solutions have been
posted.
Marking Criteria
See iLearn site for the marking ru
ic.
Charles A. Dice Center for
Research in Financial Economics
The Corporate Finance of
Multinational Firms
Isil Erel,
The Ohio State University, NBER, and ECGI
Yeejin Jang,
University of New South Wales
Michael S. Weisbach,
The Ohio State University, NBER, and ECGI
Dice Center WP XXXXXXXXXX
Fisher College of Business WP XXXXXXXXXX
Fe
uary 7, 2020
This paper can be downloaded without charge from:
http:
www.ssrn.com/abstract=3535761
An index to the working paper in the Fisher College of
Business Working Paper Series is located at:
http:
www.ssrn.com/link/Fisher-College-of-Business.html
fisher.osu.edu
Fisher College of Business
Working Paper Series
Electronic copy available at: https:
ssrn.com/abstract=3535761
http:
www.ssrn.com/abstract=3535761
http:
www.ssrn.com/link/Fisher-College-of-Business.html
The Corporate Finance of Multinational Firms
Isil Erel
Ohio State University, NBER, and ECGI
Yeejin Jang
University of New South Wales
Michael S. Weisbach
Ohio State University, NBER, and ECGI
Fe
uary 7, 2020
Abstract
An increasing fraction of firms worldwide operate in multiple countries. We study the costs and
enefits of being multinational in firms’ corporate financial decisions and survey the related
academic evidence. We document that, among U.S. publicly traded firms, the prevalence of
multinationals is approximately the same as domestic firms, using classification schemes relying
on both income-based and a sales-based metrics. Outside the U.S., the fraction is lower but has
een growing. Multinational firms are exposed to additional risks beyond those facing domestic
firms coming from political factors and exchange rates. However, they are likely to benefit from
diversification of cash flows and flexibility in capital sources. We show that multinational firms,
indeed, have a better access to foreign capital markets and a lower cost of debt than otherwise
identical domestic firms, but the evidence on the cost of equity is mixed.
* We thank Fritz Foley, Jim Hines, David Wessel and participants in a presentation at Brookings
for very helpful suggestions. Greg Allen, Hyeik Kim, Rick Ogden provided excellent research
assistance.
Electronic copy available at: https:
ssrn.com/abstract=3535761
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1. Introduction
As the world economy has become more integrated, there has been an increase in the
number of multinational firms. As of 2017, about half of the publicly-traded firms in the U.S. are
multinationals. For the average multinational firm, foreign income (sales) represent about 40% of
aggregate income (sales). The extent of international operations of multinational firms is similar
for international firms in MSCI World developed countries. As the global economy becomes more
integrated, the fraction of firms with foreign sales also rose rapidly in emerging markets. Given
that multinational firms are such significant players in the world economy, understanding their
financial policies is an important task.
Operating in more than one country can affect a firm’s financial decisions in a number of
ways. Most importantly, being multinational appears to affect both firms’ cost of finance and their
access to capital during poor economic times. An important reason for financing advantages of
multinational firms is that they have more flexibility in their potential sources of financing than
domestic firms.
In principle, any firm could bo
ow from any bank in the world or issue public equity or
debt in any country. However, for a number of reasons, it is usually much more cost-effective for
firms to raise capital in locations where they have operations (see Jang XXXXXXXXXXFinancing
international activities from local capital provides a natural hedge against cu
ency risks.
Furthermore, additional choices of where to raise capital can allow a firm to better optimize over
ates, and also to diversify its sources of financing, which can be valuable when financing becomes
scarce in one part of the world.
In addition, being multinational diversifies a firm’s cash flows across countries and
minimizes the impact of country-specific shocks. Therefore, multinational firms have lower cash-
Electronic copy available at: https:
ssrn.com/abstract=3535761
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flow volatility than otherwise similar domestic firms. This lower cash-flow volatility is likely to
educe a firm’s credit risk and cost of financing, and to increase its overall debt capacity. Consistent
with the choice of location of bo
owing and diversification across countries lowering the cost of
debt, we document empirically that multinational firms pay lower spreads on their bank loans,
holding other factors constant. However, the results on the cost of equity are mixed, with some
studies finding that being multinational lowers the cost of equity while others find that it raises the
cost of equity.
While being a multinational incurs benefits through diversification of capital sources and
y allowing for tax a
itrage across countries, it also entails costs. Firms operating in multiple
countries face political risks that are likely to be larger than those faced by domestic companies.
A multinational company is a “foreign” company in at least one country, and foreign companies
are often discriminated against by regulatory authorities. Dinc and Erel XXXXXXXXXXprovide empirical
evidence on how economic nationalism, which is defined as preference for the native and against
the foreigner, has both direct and indirect economic impact on acquisitions and impedes
international capital flows. The authors show that governments implement national policies against
foreign acquisition bids