12.13 Financial structure
Financial structure (the debt-equity mix) in an MNE is complicated by the fact that 'normal' (acceptable) debt/equity ratios differ between industries and between countries. For example, the average debt/equity ratio in large Japanese companies is about 2.3:1. In the US , this ratio is generally far less than 1, averaging about 0.6 for non-financial industries as a whole; in Australia , the ratio is about 0.5. As a rule, the total financial structure of an MNE follows the standards of the home country financial market, since shares are usually traded there. On the other hand, a US company's affiliate in Japan may be able to operate successfully with a far higher leverage than that of the parent, given local conditions in Japan . Thus, the financial structure of foreign affiliates may differ from that of the firm overall or of the parent in particular. The only limitation is that the financial structure of the affiliate must not cause the financial structure of the entire firm to deviate from acceptable standards in the home country (Gross and Kujawa 1995) .
The next reading from Hill (2005) augments the above discussion based on Gross and Kujawa (1995) on financial structure.
In your text
Hill 2005, Chapter 20, pp. 673-674.
The third basic area of financial decision-making - operations - begins in the next section and continues to the end of the chapter.
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