Multinational Financial Management:
Multinational Financial Management: An Overview * 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
The International Financial Environment
Managing the MNC 1. Managers are expected to make decisions that will maximize the stock price * A U.S. view, not shared universally. 2. Focus of this text: MNCs whose parents fully own foreign subsidiaries (parent is sole owner of subsidiary.) 3. Finance decisions, as always, are influenced by other business discipline functions: * Marketing * Management * Accounting and information systems
Agency Problems
The conflict of goals between managers and shareholders * A fiduciary conflict under all circumstances, compounded for the MNC * Time and distance * Cultural norms * Language issues * Ethical issues * Take one for the team? * Sins of omission and sins of commission!
Question: Should an MNC reduce its ethical standards to compete internationally?
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: * 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.
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 International Financial Environment
Managing the MNC 1. Managers are expected to make decisions that will maximize the stock price * A U.S. view, not shared universally. 2. Focus of this text: MNCs whose parents fully own foreign subsidiaries (parent is sole owner of subsidiary.) 3. Finance decisions, as always, are influenced by other business discipline functions: * Marketing * Management * Accounting and information systems
Agency Problems
The conflict of goals between managers and shareholders * A fiduciary conflict under all circumstances, compounded for the MNC * Time and distance * Cultural norms * Language issues * Ethical issues * Take one for the team? * Sins of omission and sins of commission!
Question: Should an MNC reduce its ethical standards to compete internationally?
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: * 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.
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