Explaining the choice of financing by subsidiaries of multinationals

What is it about?

The paper is about preferential access to finance by firms that are owned by multinationals. The main theory states that subsidiaries of foreign firms can access funds provided by their parent company and are therefore less dependent on local banks. The paper includes an empirical part which tests this idea using data on (mainly smaller) firms in a large number of countries.

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Why is it important?

Access to finance has often been given as one major problem that prevents promising small firms from growing into medium or even large firms. This paper suggests that one benefit of vertical integration (the act of buying local suppliers by multinationals) can be that this constraint is lifted for the targets of this kind of foreign direct investment. The more important financial constraints are, the more important it can be to be able to tap previously unavailable sources of funds.