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theses

My dissertation comprises of two essays: 1) Difference in responses to currency crisis between multinational firms and local firms: the use of foreign currency debt and 2) the impact of internal capital markets on the cash holdings of subsidiaries of multinational corporations. The first essay looks at the differential responses to currency crisis between multinational affiliates and local firms when both have exposure to foreign currency debt. Previous papers (Desai, Foley and Forbes, 2008) have found that U.S. multinational affiliates use their internal capital markets to capitalize on the benefits of large currency depreciation and increase sales and investment significantly more than local firms. We trace this differential response to the use of foreign currency debt. We find that local firms without foreign currency debt are less affected by currency depreciation. In addition, multinational affiliates whose parent firms are also affected by currency crisis in their home country decreases sales and assets more. The second essay examines the impact of internal capital markets on the cash holdings of emerging market subsidiaries of multinational corporations. We examine a panel of 489 multinational firms (with 2208 subsidiaries) and 749 local firms across seven countries from 2004 to 2013 and find that emerging market subsidiaries of multinational firms tend to hold significantly less cash than their emerging market competitors (local firms). This finding is suggestive of the existence of a favorable internal capital market for these subsidiaries. In addition, we examine the impact of the 2009-2010 sovereign debt crisis on cash holdings and find that, after the crisis, firms hold less cash in general and the difference in cash holdings between subsidiaries and their local counterparts decreases. Lastly, we find that the domicile of the parent company matters. When the parent is located in developed countries, there seems to be an effective internal capital market, and the multinational affiliates tend to hold less cash than the local competitors. In contrast, when the parent firms are located in developing countries, the multinational affiliates seem to derive little benefit from the internal capital market, and there is no significant difference in cash holdings.

ETD_7039

Ph.D.

Includes bibliographical references

by Jing Jin

doi:10.7282/T3MC927V

ETD doctoral

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