Multinational Finance

Multinational companies differ from purely domestic companies in that they have the ability to enhance their operations by moving resources among various subsidiaries through internal transfers. This can be a distinct advantage over having to deal with various other companies, each operating in various countries, when resource issues arise. This diversity also makes companies less dependent on the vagaries of a single market, and instead opens up global markets. It also makes possible various financing options that are not available to purely domestic companies. Once a company decides to take advantage of these benefits and enter the international arena, there are distinct financing concern that need to be addressed.

These concerns can be divided into the following categories: acquisition and investment of funds. The acquisition of funds is concerned with determining how financing is accomplished. This includes considering whether it is best for the company to generate funds from internal sources, or whether the company should seek external financing at the lowest possible cost. Most companies, whether multinational or domestic, settle on a combination of these two approaches. The investment decision focuses on how funds are put to use once they are obtained. The goal here is to maximize value as measured by shareholder return.

These issues become more complex when viewed from the perspective of a multinational organization. Internally generated funds, for example, may come from one of the multinational’s wholly owned subsidiaries. While technically this is an internal source of funds, it can appear to be an external source when viewed from an accounting perspective, and loan repayments to internal corporate sources are a particular source of accounting complexities that increase as multinational firms proliferate.

The ability to move resources internally yet across international borders brings with it problems in …

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