FINS 3616 SUMMARY NOTES
Chapter 1 – Introduction to multinational finance
Introduction of international business finance
Three phases of business o Domestic phase : operations are confined within the boundaries of one country o International trade phase : the firm imports materials or export its product or both o Multinational phase : the firm establishes operations overseas
Structure of a multinational corporation
Board of Directors
Management
Shareholders
Debt
Assets
Equity
o o o o o
The firm can be viewed as the nexus of a set of contracts between various stakeholders in the firm.
In this set-of-contracts perspective, the corporation is defined by a legal framework of contracts.
Important contracts include those with debt and equity, customers, suppliers, employees, and host governments.
The traditional goal of financial management is to maximize shareholder wealth, but the multinational corporation must operate within the the rules set by host governments Claims on revenues of a multinational corporation
Revenues
Expenses
Govt
Other
Debt
Equity
o o VRevenues = VExpenses + VGovt + VDebt + VEqui ty + VOther
o o o
The equality (VREVENUES = VEXPENSES + VGOVT + VOTHER + VDEBT + VEQUITY) is a consequence of
“value additivity.”
Viewing the assets of the firm in this way incorporates many more of the firm’s stakeholders (broadly defined).
The value of these claims depends on the laws and conventions of the nations in which the MNC operates
o
Stakeholders are often in conflict with each other
Agency cost
Cost arising from conflicts of interest between management and other stakeholders, especially equity holders
o
National corporate governance systems place different emphases on the firm’s various stakeholders.
Shareholder wealth maximization is paramount in the United States and
United Kingdom. Other stakeholders are treated as outsiders and negotiations take place as arms-length transactions in an impersonal marketplace. The firm’s
Introduction of international business finance
Three phases of business o Domestic phase : operations are confined within the boundaries of one country o International trade phase : the firm imports materials or export its product or both o Multinational phase : the firm establishes operations overseas
Structure of a multinational corporation
Board of Directors
Management
Shareholders
Debt
Assets
Equity
o o o o o
The firm can be viewed as the nexus of a set of contracts between various stakeholders in the firm.
In this set-of-contracts perspective, the corporation is defined by a legal framework of contracts.
Important contracts include those with debt and equity, customers, suppliers, employees, and host governments.
The traditional goal of financial management is to maximize shareholder wealth, but the multinational corporation must operate within the the rules set by host governments Claims on revenues of a multinational corporation
Revenues
Expenses
Govt
Other
Debt
Equity
o o VRevenues = VExpenses + VGovt + VDebt + VEqui ty + VOther
o o o
The equality (VREVENUES = VEXPENSES + VGOVT + VOTHER + VDEBT + VEQUITY) is a consequence of
“value additivity.”
Viewing the assets of the firm in this way incorporates many more of the firm’s stakeholders (broadly defined).
The value of these claims depends on the laws and conventions of the nations in which the MNC operates
o
Stakeholders are often in conflict with each other
Agency cost
Cost arising from conflicts of interest between management and other stakeholders, especially equity holders
o
National corporate governance systems place different emphases on the firm’s various stakeholders.
Shareholder wealth maximization is paramount in the United States and
United Kingdom. Other stakeholders are treated as outsiders and negotiations take place as arms-length transactions in an impersonal marketplace. The firm’s