Multinational Finance

Evaluating the Opportunities, Costs, and Risks of Multinational Operations

Kirt C. Butler

• Publisher: Wiley
• Year: 2016
• ISBN:
  9781119219705
• Edition: 6
• Topic: Business
• Subtopic: Finance
• Index: Business

Deep coverage and rigorous examination of international corporate finance

Multinational Finance offers an advanced exploration of international corporate finance concepts and operations. Despite its status as one of the most rigorous texts on the topic, this book remains accessible and readable without sacrificing depth of coverage. Sidebars, key terms, essays, conceptual questions, and problems with solutions help aid in the learning process, while suggested readings and PowerPoint handouts reinforce the material and offer avenues for further exploration. This new sixth edition includes Excel templates that allow students to use real-world tools in a learning environment, and the modular structure facilitates course customization to individual objectives, interests, and preparatory level. The emphasis is on the basics of financial management, but coverage includes unique chapters on treasury management, asset pricing, hedging, options, and portfolio management in addition to traditional finance topics.

International finance is a diverse field with myriad specialties and a vast array of possible interests. This book allows students to view the field through the lens of a financial manager with investment or financial options in more than one country to give them a practical feel for real-world application.

• Understand the nature and operations of international corporate finance
• Evaluate opportunities, costs, and risks of multinational operations
• See beyond the numbers and terminology to the general principles at work
• Learn the markets, currencies, taxation, capital structure, governance, and more

Comprehensive, adaptable, and rigorously focused, this book gives students a solid foundation in international corporate finance, as well as a sound understanding of the tools and mechanics of the field. Designed for MBA and advanced undergraduate courses, Multinational Finance provides the deep coverage so essential to a solid education in finance.

Part One
The International Financial Environment

Even if you're on the right track, you'll get run over if you just sit there.

—Will Rogers

Chapter 1
An Introduction to Multinational Finance

The notes I handle no better than many pianists, but the pauses between the notes—ah, that is where the art resides!

—Artur Schnabel

This book assumes the viewpoint of the financial manager of a multinational corporation (MNC) with investment or financial operations in more than one country. Managers encounter new opportunities as they extend their operations into international markets, as well as new costs and risks. The challenge facing the multinational financial manager is to successfully develop and execute business and financial strategies in more than one culture or national business environment.

1.1 The Goals of the Multinational Corporation

Exhibit 1.1 presents the ownership and control structure that is typical of companies in market economies. In these countries, the primary goal of the firm is to maximize shareholder wealth. However, shareholder wealth maximization is far from the only objective of the MNC. Many other stakeholders have an interest in the firm, including suppliers, customers, debtholders, managers, business partners, employees, and society at large. The objectives of these other stakeholders often are in conflict with shareholder wealth maximization, especially during periods of financial distress.

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Stakeholders include those with an interest—or stake—in the firm

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Exhibit 1.1 Corporate Governance

Exhibit 1.2 represents the value of the various claimants on the firm's revenues. In this view, the value of revenues is allocated to operating expenses, governments, suppliers of debt and equity capital, and other potential claimants such as domestic or foreign litigants, in proportion to their claims on the firm.

Exhibit 1.2 Corporate Stakeholders and Their Claims on the Revenues of the Firm

Stakeholders sometimes are narrowly defined as the providers of capital, particularly debt and equity. These claims are paid out of operating income and are represented by V_DEBT and V_EQUITY in Exhibit 1.2. The values of these claims depend on the business environments of the nations in which the MNC operates.

A broader definition of stakeholder includes anyone with an interest in the firm, including customers, suppliers, employees, host governments, and anyone else with an actual or potential claim on the firm. The firm's customers help determine the value of revenues, V_REVENUES. Suppliers and employees determine the value of operating expenses, V_EXPENSES. Governmental claims, V_GOVT, represent the claims of society at large and include taxes, tariffs, and the explicit and implicit costs of compliance with local laws and regulations (e.g., environmental laws and corporate governance regulations).

The objectives of these other stakeholders are seldom the same as those of debt or equity shareholders. Labor is concerned with wages and job security. Customers and suppliers are concerned with prices, costs, and quality. The “ma...