This paper examines the currency-of-denomination decision for long-term debt financing in the presence of corporate income taxes and flotation costs. The numerical analysis provides convincing evidence that the “tax effect” dominates the “flotation cost effect” unless the firm operates in tax haven countries. Hence, the conventional decision rule still applies to the choice of currency in which to borrow or to lend: Borrow in the weakest currency and lend in the strongest.
ASJC Scopus subject areas
- Business and International Management
- Business, Management and Accounting(all)
- Economics and Econometrics
- Strategy and Management
- Management of Technology and Innovation