- E-ISSN2288-2766
- KCI
E-ISSN : 2288-2766
The effect of interaction between internationalization and strategic pursuance on the use of foreign currency denominated debt: in the context of Korean MNEs
Jaiho Chung
Cho, Myeong-Hyeon
Abstract
This study investigates the effect of MNEs’ characteristics on the use of foreign currency denominated debt in the context of Korean firms. This study examines the relationship between MNEs and the use of foreign debt focusing on the accessibility to the capital market in addition to the motive of hedging against foreign exchange exposure. The results show that the interaction between the level of internationalization represented by intra-regional diversification and the strategic characteristics embedded in the region of entry affects the use of foreign debt. In case of a high level of diversification within the developing region with a strong pursuit of asset exploitation, MNEs are more likely to use foreign debt, whereas a high level of diversification within the developed region with a strong pursuit of asset seeking, MNEs are less likely to use foreign debt. It is interpreted that the accessibility to capital markets can be a way of explaining the use of foreign debt by firms in addition to the motive of hedging against foreign exchange exposure. That is, differences between MNEs in terms of intra-regional diversification, strategic orientation, and the accessibility to capital markets as well as the hedging motive affect the use of foreign debt.
- keywords
- foreign currency denominated debt, strategic pursuance, MNE, internationalization, intra-region diversification, accessibility to capital market, foreign exchange exposure hedge
Reference
Aabo, T. (2006). The importance of corporate foreign debt in managing exchange rate exposure in non-financial companies. European Financial Management, 12(4), 633-649.
Allayannis, G., & Ofek, E. (2001). Exchange rate exposure, hedging, and the use of foreign currency derivatives. Journal of International Money and Finance, 20(2), 273-296.
Alp, A. (2013). Structural shifts in credit rating standards. The Journal of Finance, 68(6), 2435-2470.
Bae, S. C., Kim, H. S., & Kwon T. H. (2016). Foreign currency debt financing, firm value, and risk: Evidence from Korea surrounding the global financial crisis. Asia Pacific Journal of Financial Studies, 45(1), 124-152.
Ban, H. J. (2009). Ownership structures, internationalization strategies and debt financing - focused on family controlled companies. Korea Trade Review, 34(3), 195-219.
Bartram, S. M. (2008). What lies beneath: Foreign exchange rate exposure, hedging and cash flows. Journal of Banking & Finance, 32(8), 1508–1521.
Binks, M. R., & Ennew, C.T. (1996). Growing firms and the credit constraint. Small Business Economics, 8(1), 17-25.
Brown, M., Ongena, S., Popov, A., & Yesin, P. (2011a). Who needs credit and who gets credit in Eastern Europe? Economic Policy, 26(65), 93-130.
Brown, M., Ongena, S., & Yesin, P. (2011b). Foreign currency borrowing by small firms in the transition economies. Journal of Financial Intermediation, 20(3), 285–302.
Burgman, T. (1996). An empirical examination of multinational corporate capital structure. Journal of International Business Studies, 27(3), 553-570.
Chang, S. J. (1995). International expansion strategy of Japanese firms: Capability building through sequential entry. Academy of Management Journal, 38(2), 383-407.
Chen, C.J., Cheng, C.S., He, J., & Kim, J. (1997). An Investigation of the relationship between international activities and capital structure. Journal of International Business Studies, 28(3), 563-577.
Chen, H., & Chen, T. (1998). Network linkages and location choice in foreign direct investment. Journal of International Business Studies, 29(3), 445-467.
Cui, L., Meyer, K.E., & Hu, H.W., (2014). What drives firms’ intent to seek strategic assets by foreign direct investment? A study of emerging economy firms. Journal of World Business, 49(4), 488–501.
Duanmu, J.L. (2012). Firm heterogeneity and location choice of Chinese multinational enterprises (MNEs). Journal of World Business, 47(1), 64-72.
Froot, K. A., Scharfstein, D. S., & Stein, J.C. (1993). Risk management: coordinating corporate investment and financing policies. The Journal of Finance, 48(5), 1629-1658.
Gao, G.Y., & Pan, Y. (2010). The pace of MNEs' sequential entries: Cumulative entry experience and the dynamic process. Journal of International Business Studies, 41(9), 1572-1580.
Gatopoulos, G., & Loubergé, H. (2013). Combined use of foreign debt and currency derivatives under the threat of currency crises: The case of Latin American firms. Journal of International Money and Finance 35, 54–75.
Geczy, C., Minton, B.A., & Schrand, C. (1997). Why firms use currency derivatives. The Journal of Finance, 52(4), 1324-1354.
Graham, J.R., & Harvey, C.R. (2001). The theory and practice of corporate finance: evidence from the field. Journal of Financial Economics, 60 (2-3), 187- 243.
He, J., & Ng, L. (1998). The foreign exchange rate exposure of Japanese Multinational corporations. The Journal of Finance, 53(2), 733-753.
Javier, S. V., & Juan, M. U. (2005). Financing preferences of Spanish firms: Evidence on the pecking order theory. Review of Quantitative Finance and Accounting, 25(4), 341–355.
Joliet, R., & Muller, A. (2013). Capital structure effects of international expansion. Journal of Multinational Financial Management, 23(5). 375-393.
Jong, A., Verbeek, M., & Verwijmeren, P. (2011). Firms’ debt–equity decisions when the static tradeoff theory and the pecking order theory disagree. Journal of Banking & Finance, 35(5), 1303–1314.
Kedia, S., & Mozumdar, A. (2003). Foreign currency-denominated debt: An empirical examination. The Journal of Business, 76(4), 521-546.
Keloharju, M. & Niskanen, M. (2001). Why do firms raise foreign currency denominated debt? evidence from Finland. European Financial Management, 7(4), 481-496.
Kwon, T. H. (2007). Asymmetric exchange rate exposure and foreign currency denominated debt. International Business Journal, 18(1), 87-110.
Kwon, T. H. (2013). Foreign currency denominated debt and firm value. International Business Journal, 24(3), 51-72.
Makino, S. Lau, C-M., & Yeh, R-S. (2002). Asset-exploitation versus asset-seeking: Implications for location choice of foreign direct investment from newly industrialized economies. Journal of International Business Studies, 33(3), 403-421.
Mansi, S.A., & Reeb, D. M. (2002). Corporate international activity and debt financing. Journal of International Business Studies, 33(1), 129-147.
Mian, S.L. (1996). Evidence on corporate hedging policy. Journal of Financial and Quantitative Analysis, 31(3). 419-439.
Mora, N., Neaime, S., & Aintablian, S. (2013). Foreign currency borrowing by small firms in emerging markets: When domestic banks intermediate dollars. Journal of Banking & Finance, 37(3), 1093–1107.
Nance, D. R., Smith, C.W. Jr., & Smithon, C.W. (1993). On the determinants of corporate hedging. The Journal of Finance, 48(1), 267-284.
Nguyen, H., & Faff, R. (2006). Foreign debt and financial hedging: Evidence from Australia. International Review of Economics and Finance, 15(2), 184-201.
Pantzalis, C. (2001). Does location matter? An empirical analysis of geographic scope and MNC market valuation. Journal of International Business Studies, 32(1), 133-155.
Pantzalis, C., Simkins, B.J., & Laux, P.A. (2001). Operational hedges and foreign exchange exposure of U.S. multinational corporations. Journal of International Business Studies, 32(4), 793-812.
Qian, G. Li, L., Li, J., & Qian, Z. (2008). Regional diversification and firm performance. Journal of International Business Studies, 39(1), 197-214.
Qian, G., Li, L., & Rugman, A.M. (2013). Liability of country foreignness and liability of regional foreignness: Their effects on geographic diversification and firm performance. Journal of International Business Studies, 44(6), 635-647.
Qian, G., Khoury, T. A., Peng, M. W., & Qian, Z. (2010). The performance implications of intra-and inter-regional geographic diversification. Strategic Management Journal, 31(9), 1018-1030.
Ramasamy, B. Yeung, M., & Laforet, S. (2012). China’s outward foreign direct investment: Location choice and firm ownership. Journal of World Business, 47(1), 17–25.
Reeb, D. M., Mansi, S. A., & Allee, J. M. (2001). Firm internationalization and the cost of debt financing: Evidence from non-provisional publicly traded debt. Journal of Financial and Quantitative Analysis, 36(3), 395-414.
Zhang, H.Z, Park, K.A., & Kim, C.K. (2005). A Study on the FDI performance factors- focused on the Korean firms in China. International Business Journal, 16(3), 27-64.
Zheng, N., Wei,Y., Zhang, Y., & Yang, J. (2016). In search of strategic assets through cross-border merger and acquisitions: Evidence from Chinese multinational enterprises in developed economies. International Business Review, 25(1), 177–186.
- Downloaded
- Viewed
- 0KCI Citations
- 0WOS Citations
