total assets of foreign affiliates are estimated by extrapolating the worldwide data on foreign affiliates of transnational corporations from France, Germany, Italy, Japan, and the United States for worldwide sales, those from the United States for gross product, and those from Germany and the United States for assets, on the basis of the shares of those countries in the worldwide inward FDI stock. Not included in this table are the value of worldwide operations by foreign affiliates associated with their parentfirms through nonequity relationships and the sales of
. S. Department of Commerce, in measuring capital flows from U. S. parents to their foreign subsidiaries, has arbitrarily assumed that control exists when the U. S. firms own as little as 10 per cent of equity.
Investment of multinational corporations in foreign countries is part of a broader class of investment activity known as direct investment. Any new resources made available by parentfirms to subsidiaries in foreign countries, some of which are not multinational corporations in the sense defined above, are considered to be direct
country. In a stylized view of the multinational firm’s capital budgeting process, after-tax profits and the required dividend payout ratio determine the following
period’s reinvested earnings. Once the debt-equity ratio is set for the entire multinational group, the funds available for capital expenditures are fully determined. 10
This process would be consistent with the observation that the parentfirm of a multinational company typically extends a guarantee for the liabilities of its foreign affiliates. In this case, the credit rating of the multinational firm