The effect of interaction between internationalization and strategic pursuance on the use of foreign currency denominated debt: in the context of Korean MNEs

Abstract

This study investigates the effect of MNEs’ characteristics on the use of foreign currency denominated debt in the context of Korean firms. This study examines the relationship between MNEs and the use of foreign debt focusing on the accessibility to the capital market in addition to the motive of hedging against foreign exchange exposure. The results show that the interaction between the level of internationalization represented by intra-regional diversification and the strategic characteristics embedded in the region of entry affects the use of foreign debt. In case of a high level of diversification within the developing region with a strong pursuit of asset exploitation, MNEs are more likely to use foreign debt, whereas a high level of diversification within the developed region with a strong pursuit of asset seeking, MNEs are less likely to use foreign debt. It is interpreted that the accessibility to capital markets can be a way of explaining the use of foreign debt by firms in addition to the motive of hedging against foreign exchange exposure. That is, differences between MNEs in terms of intra-regional diversification, strategic orientation, and the accessibility to capital markets as well as the hedging motive affect the use of foreign debt.