A Multi Objective and Multi Constraint Approach to the Investment and Financing of a Multinational Enterprise

Abstract

In this paper, we study the investment decisions of Multinational enterprises (MNEs). MNEs have several additional objectives and rules of operation. This is because MNEs have to satisfy all of the following entities and conditions in addition to fulfilling all of the goals of domestic companies. First, they have to obey any restrictions foreign governments impose upon them, including expropriation itself.Additionally, theyhave towatch global tax rates and attempt to mitigate their tax bills. Third, they have to disallow themselves from borrowing too much. Fourth, they have to have a certain remission rate from both the subsidiaries and the parent company. Further, they have to consider the exchange rates between the currencies where their subsidiaries operate and that of the parent country.

Introduction

The goals which domestic firms may pursue may not be the ones which multinational enterprises (MNEs) follow. The goals of profit and/or wealth maximization which a few theorists propose have come under attack over the years by several others. Those with contending views have offered goals which compete with those of profit and wealth maximization. In our study,we do not discard these goals but merely supplement them with a few other objectives for which some evidence is given that holds true at times. We basically propose that a firm does not have a single goal, but rather several interrelated ones working together. Thus, a firm may be trying to both maximize profit and share price to satisfy stockholders aswell as minimize the cost of capitalwhile also trying to increase sales and still behave altruistically.

Compared to domestic firms, MNEs have several additional objectives and rules of operation. This is because MNEs have to satisfy all of the following entities and conditions in addition to fulfilling all of the goals of domestic companies. First, they have to obey any restrictions foreign governments impose upon them, including expropriation itself. Additionally, they have towatch global tax rates and attempt to mitigate their tax bills. Third, they have to disallow themselves from borrowing too much. Fourth, they have to have a certain remission rate from both the subsidiaries and the parent company. Further, they have to consider the exchange rates between the currencies where their subsidiaries operateandthat of the parent country.

This study examines the numerous objectives and constraintswhich anMNEcould face and develops a model of international investment and financing in a global context.

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