Review of World Economics

, Volume 146, Issue 2, pp 281–302 | Cite as

Debt financing and sharp currency depreciations: wholly versus partially-owned multinational affiliates

  • Shafik HebousEmail author
  • Alfons J. Weichenrieder
Original Paper


This paper provides empirical evidence on two potential costs of shared ownership of German affiliates abroad. First, in periods of currency crises, wholly-owned affiliates, in contrast to partially-owned affiliates, seem to circumvent financial constraints by accessing capital from their parent companies. In terms of differences in performance regarding sales of both types of firms, wholly-owned affiliates have a significantly better sales performance than partially-owned affiliates in periods of crises. This finding contributes to the evidence that FDI helps in mitigating the negative consequences of sharp currency depreciation, and stresses that this effect works especially through capital inflows to wholly-owned affiliates. Second, the debt financing of partially-owned affiliates is less sensitive to the tax rate suggesting that partially-owned affiliates rely less on international debt shifting than wholly-owned affiliates. This indicates that partially-owned affiliates are less flexible to exploit tax efficient strategies.


Foreign direct investment Capital structure Ownership structure Currency crises Corporate taxation 

JEL Classification

F230 G320 



The authors gratefully acknowledge the hospitality and support of the research centre of Deutsche Bundesbank. The authors would like to also thank Heinz Herrmann, Stefan Klonner, Beatrix Stejskal-Passler, an anonymous referee and the seminar participants at the Goethe University Frankfurt for helpful comments. This paper was written while the second author was visiting the Oxford Centre for Business Taxation. The hospitality of the centre is highly appreciated.


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Copyright information

© Kiel Institute 2010

Authors and Affiliations

  1. 1.Goethe UniversityFrankfurtGermany
  2. 2.Vienna University of Economics and BusinessViennaAustria
  3. 3.CESifoMunichGermany

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