ICF11e ch01

Topics: Investment, Foreign exchange market, Cash flow Pages: 18 (2933 words) Published: February 2, 2015
Part 1
The International Financial Environment

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© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

1Multinational Financial Management
Chapter Objectives

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Identify the management goal and organizational
structure of the Multinational Corporation (MNC).



Describe the key theories that justify international
business



Explain the common methods used to conduct
international business



Provide a model for valuing the MNC
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Managing the MNC
1. Managers are expected to make
decisions that will maximize the stock
price.
2. Focus of this text: MNCs whose parents
fully own foreign subsidiaries (U.S. parent
is sole owner of subsidiary.)
3. Finance decisions are influenced by other
business discipline functions:
Marketing
Management
Accounting and information systems
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© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Agency Problems

The conflict of goals between managers
and shareholders

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© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Agency Costs
1. Definition: Cost of ensuring that managers
maximize shareholder wealth
2. Costs are normally higher for MNCs than for
purely domestic firms for several reasons:





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Monitoring managers of distant subsidiaries in foreign
countries is more difficult.
Foreign subsidiary managers raised in different
cultures may not follow uniform goals.
Sheer size of larger MNCs can create large agency
problems.
Some non-U.S. managers tend to downplay the
short-term effects of decisions.
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Control of Agency Problems
1. Parent control of agency problems
Parent should clearly communicate the goals for each
subsidiary to ensure managers focus on maximizing the
value of the subsidiary.

2. Corporate control of agency problems
Entire management of the MNC must be focused on
maximizing shareholder wealth.

3. Sarbanes-Oxley Act (SOX)
Ensures a more transparent process for managers to
report on the productivity and financial condition of their
firm.

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© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

SOX Methods to Improve Reporting
 Establishing a centralized database of
information
 Ensuring that all data are reported consistently
among subsidiaries
 Implementing a system that automatically
checks for unusual discrepancies relative to
norms
 Speeding the process by which all departments
and subsidiaries have access to all the data
they need
 Making executives more accountable for
financial statements
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© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in...
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