Financial Structures of Spanish Firms: Multinational vs. Domestic
Palenzuela, Valentin Azofra, Bobillo, Alfredo Martinez, Multinational Business Review
This research centers its attention on the analysis of the different financial behavior patterns which exist between domestic and multinational enterprises operating in Spain.
For this reason we attempt to examine the most significant features of financial behavior between these two types of firms in order to identify the reasons for such differences, and thus, to establish the characteristic financial profile of the two types of enterprise under analysis.
The limited amount of reference literature and in particular the few empirical studies which have been carried out, seem to reveal that the dissimilarities of behavior observed between national firms and subsidiary companies can, to a large extent, be explained by the multinational character, size, and functional nature of the former. and also by the differential characteristics of the institutional environment in which these two types of enterprises operate. The following related studies are mentioned for their relevance to the findings of the present research: KUMAR (1984), MICHEL AND SHAKED (1996) AND LEE AND KWOK (1988), as representative of similar comparisons carried out in other countries; and the studies of MARTIN AND ROMERO (1983), BERGES AND ONTIVEROS (1984), and DURAN AND LAMOTHE (1986, 1989) as representative of studies which were carried out in Spain.
Comparing the tendencies of 359 British enterprises and 313 multinational companies for the period of time between 1972 and 1976, KUMAR found a positive correlation, although it declined with time, between the degree of multinationalism of the enterprises (volume of sales overseas) and the size and the industrial sector to which these enterprises belonged. Likewise, this author pointed out that the most significant differences which existed between both types of companies were those which related to their financial behavior. These included the following: the multinational corporations showed a major rate of growth through acquisitions and more external finance while the domestic corporations demonstrated, an the contrary, a greater internal rate of growth, a law rate of exports, and higher profitability.
The study of MICHEL AND SHAKED (1986) shows a comparison between the financial features of 58 multinational US enterprises and 43 domestic enterprises used as a control group during the years 1980, 1981, and 1982. The results of the empirical research revealed that multinational enterprises had a lower systematic risk, and as a result achieved a lower market-based performance and also showed a greater capitalization ratio than did the domestic enterprises. The substantially Larger size of the multinational enterprises is not significant in explaining the observed difference between the two groups performance. Furthermore, a higher standard deviation of equity was observed in the the domestic enterprises than in that of the multinationals.
A comparative analysis of the capital structures and their determinants between 644 multinational companies and 421 US domestic companies was more recently carried out by LEE AND KWOK (1988). The results of this study demonstrated, contrary to widely spread belief, that multinational enterprises are less indebted than national enterprises. Among the determinants of capital structure between the two different groups of companies, the effects of bankruptcy and agency costs are introduced in the analysis, due to the greater relationship that both variables have with the characteristics of the companies than with the international environment, and in an attempt to integrate both, thus obtaining empirical evidence that multinational enterprises have lower bankruptcy costs than national enterprises, while on the other hand domestic enterprises face lower agency costs.
Among the empirical research efforts conducted in Spain focusing on the differential behavioral characteristics of multinational enterprises and of those which are solely domestic, we firstly review the work of MARTIN AND ROMERO (1983). …