CAPITAL STRUCTURE DECISIONS BY MULTINATIONAL CORPORATIONS: A NEW APPROACH

The capital structure of multinational corporations (MNCs) is a complex and multidimensional phenomenon that significantly influences their operational efficiency and financial decision-making processes. This article investigates the diverse factors impacting capital structure decisions, emphasizing the interplay of internal and market conditions. Through a comprehensive analysis of existing theories and empirical studies, we identify key determinants such as profitability, tax considerations, business risk, growth opportunities, agency costs and shareholder wealth. In light of these findings, we introduce a novel metric, Signaling Capital Structure Ratio, designed to enhance capital structure analysis by reflecting the actual decisions made by insiders within MNCs. This proposed ratio aims to provide a more accurate assessment of how MNCs navigate their financing strategies in response to various internal and external factors. By focusing on the intentions and actions taken by decision-makers, this approach offers valuable insights into the complexities of capital structure management. Our findings underscore the importance of achieving an optimal balance between debt and equity financing, which can enhance overall performance, reduce capital costs, and improve risk management. By applying this new ratio, MNCs can better adapt their strategies to dynamic market conditions. Our study reconsiders established theories on capital structure, presenting evidence of a significant paradigm shift among U.S. nonfinancial corporations. The findings underscore a transition toward alternative financing strategies, challenging traditional approaches to debt, equity and dividend distribution preferences. The research provides valuable insights into how corporations are leveraging capital allocation to navigate recovery and achieve long-term sustainable growth.