***This an International Finance Course*** Analyze the theoretical and empirical
ID: 1171023 • Letter: #
Question
***This an International Finance Course***Analyze the theoretical and empirical differences in capital costs for a domestic company versus an a MNE.
Your response should be at lest 200 words in length.
***This an International Finance Course***
Analyze the theoretical and empirical differences in capital costs for a domestic company versus an a MNE.
Your response should be at lest 200 words in length.
Analyze the theoretical and empirical differences in capital costs for a domestic company versus an a MNE.
Your response should be at lest 200 words in length.
Explanation / Answer
Capital costs incurred by a firm is basically the one time expense incurred by the firm.
Now if we see the theoritical differences in capital costs incurred the first point is of the foreign exchange, macro business environment, economic structure, legal environment & role of government. These can be a few theoritical differences where MNCs have to face issues for capital costs and any expansion or project that they are considering.
The above factors can be considerd empirical as well as they differ country to country. As in case of India the tax structure was very complex before introduction of GST because of which many business ideas failed in their initial stages. These differ for MNE and domestic industries.
Another factor that could be empirical is differences in cultures, traditions, different group of stakeholders etc. Here also let's consider India where foreign intervention or entry is considered as an invasion due to bad history from Britain. Hence for MNCs there is not much support at rural level due to its culture and tradition. Moreover the group of stakeholders i.e suppliers, consumers, lenders, shareholders have a different psychology which needs to be studied and taken care of for successful business, this requires additional capitla costs. Also convincing people or providing them with some incentives requires cost. MNC face higher tax brackets and policies are even stringent for them, higher excise taxes, transportation charges, different land aquisition rules etc can be other factors that affect the captial costs.
These are the instances where domestic company faces lower capital costs as compared to an MNC. There is no thick boundary between the empirical and theoritical factors as almost all of the theoritical aspects are observed practically as well
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