International corporate financing involves managing assets for large companies across multiple nations. Cultural standards and national laws impact how it is conducted, and investors have different levels of influence in different countries. Financing is managed through local banking systems, and debt and inventory management aim to reduce costs and increase profits. Financial risk management is used to address risks, and private equity investment options are available.
International corporate financing is a broad-based attempt by large companies located in more than one nation to manage their assets effectively. Components of international corporations that are management’s most immediate day-to-day concern include working capital, cash, and short-term financing to keep operations running smoothly. A long-term concern in the arena of international corporate finance is debt and inventory management.
Although the practice of international corporate finance has spread across many nations that are the headquarters of large multinational corporations, such as the US, Germany, and Japan, these nations take markedly different approaches to managerial finance. This is in contrast to the widespread belief in business that there is generally only one best form of corporate finance and governance, regardless of location. However, pre-established cultural standards and national laws can have a dramatic impact on the way international corporate finance is conducted.
When corporations are publicly traded companies, one of the key differences between industrialized nations is the influence investors have over the decisions and direction of the corporation. Large institutional or individual investors in Western countries like the US have stricter regulatory constraints to adhere to in their attempt to chart a company’s direction than do investors in Japan, for example. By contrast, alternative forms of equity investment in corporations are supported and obtained much more easily in the United States than in Japan and Germany, where, since 1996, the regulatory and tax environment has suppressed trading in securities more than in the U.S. Disclosure requirements for corporations to fully inform potential investors and shareholders in the United States of a corporation’s risk and financial status are much more strictly regulated than in Germany or Japan. This full disclosure practice makes such corporations more attractive to foreign investors and passively restricts investment in international corporations based in Japan or Germany.
In addition to these issues, international corporate finance follows common themes regardless of the company’s native point of origin. Principal, cash, and short-term financing are managed through local or regional banking systems through loans, electronic payments, and periodic statement notifications. This includes sweep accounts, where excess cash in a corporate account is transferred to a money market account or mutual fund for security reasons and transferred back for the next day’s business. Zero balance accounting is also commonly practiced, where each department of the international corporate finance entity operates separate financial practices, but all money is funneled from each location to one main bank account.
Debt and inventory management are aimed at reducing operating costs and increasing profits. With debt, this means establishing credit policies with suppliers and customers that foster the growth of the company, while maintaining the income stream to a point where the corporation is not considered undercapitalized and risky to invest or do business with. Inventory management focuses not only on the efficient flow of goods and services across departments and national borders, but also on reducing costs in this process through more efficient practices and sourcing raw materials from lower prices.
In the arena of international corporate finance, often the financial risks a company faces outweigh the opportunities it can offer for capital investment. The practice of financial risk management attempts to address this problem in a broad sense through various avenues of financing, such as options and futures trading, the use of hedge funds, and the use of investment banking services. Companies also go beyond the public sector to obtain various types of private equity investment, such as venture capital, growth or mezzanine. Other options may include seeking angel investors or allowing a financial backer to initiate a leveraged buyout.
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