FDI, Export, and Capital StructureAn Agency Theory Perspective

This study investigates the impact of foreign direct investment (FDI) and export on capital structure for firms in emerging economies. The hypotheses are developed based on an agency theory perspective and are tested using a sample of 566 Taiwanese firms. We find that the behavior of multinational corporations (MNCs) with a high debt ratio is in line with agency theory predictions.Our findings show that: (1) MNCs in emerging economies, defined as those firms with at least one foreign subsidiary or some extent of FDI, have a higher level of debt than non-MNCs, which contrasts with the findings for MNCs based in developed countries; and (2) export intensity leads to a lower debt ratio, which has not received much attention in previous studies. We propose several factors related to the context of emerging economies to explain these contradictory findings.We also explore the interaction effect of the extent of FDI and export intensity on the capital structure of MNCs, and find that the impact is negative, which implies that both monitoring costs and agency costs rise dramatically for creditors when firms’ international operations become overly complicated.