International Knowledge Transfers and Capital Structure of Multinational Subsidiaries

This study investigates how knowledge transfers within multinational corporations affect financing decisions of foreign subsidiaries using a unique dataset on Korean multinationals and their foreign subsidiaries’ employment structure. We document that subsidiaries with more expatriate managers tend to maintain lower financial leverage, suggesting that subsidiaries receiving more knowledge assets through their expatriate managers opt for lower debt financing. We further show that the negative relation between expatriate managers on subsidiary leverage is more pronounced when parents or subsidiaries own greater intangible assets and host countries have fewer knowledge assets in place. The instrumental variable estimation also confirms the negative relation