International knowledge transfers and capital structure of multinational affiliates: Evidence from expatriate managers as the transfer agents

This study investigates how knowledge transfers within multinational corporations affect the financing decisions of foreign affiliates using a unique dataset on Korean multinationals and their foreign affiliates’ employment structure. We document that affiliates with more expatriate managers tend to maintain lower financial leverage, suggesting that the greater number of expatriate managers facilitate knowledge transfer and increase risk of affiliates. We further show that the negative relation between expatriate managers on affiliate leverage is more pronounced when parents or affiliates own greater intangible assets and host countries have fewer knowledge assets in place. The instrumental variable estimation also confirms the negative relation.