Sergiy Tsyganov, Olga Zalisko


This paper considers stock investing bias that results from exchange rate risk impact as a factor influencing MNE capital structure. This bias should be considered as a supply factor. International diversification theory recognizes the exchange risk to be one of the most influential factors of investment portfolios returns. It defines investment returns level as well as the total risk and return structure. The impact of this factor on MNE capital structure is theoretically proved from international investments diversification theory point of view. This hypothesis however requires empirical testing. Exchange rate risk affects portfolio investors’ decisions thus creating financial resources supply and influencing corporate capital structure. Stock investing bias arises due to the appearance of exchange rate risks since they transform the risk-free debt securities into risky papers that unlike stocks have the most part of their risk accounting for exchange rate risk. The share of exchange rate risk in the total risk structure of equities is twice less compared to bonds. This decreases the investment attractiveness of debt securities and makes stocks more attractive all others equal


MNE capital structure; capital structure factors; Miller-Modigliani theory; Miller theory; international diversification of investment portfolios; direct investments international diversification; stock investing bias; exchange rate risk

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