This paper investigates how knowledge transferred within multinational enterprises affects capital structure decisions of foreign affiliates. Employing the unique dataset on Korean multinationals and their employment structure of foreign affiliates, we measure the knowledge transfer through human interactions using the ratio of expatriate managers out of total employees. We document that affiliates with more expatriate managers tend to maintain lower leverage, suggesting the high level of intangible assets passed on through expatriate managers discourage debt financing. We further show that the negative effect on leverage is more pronounced when parents/affiliates are involved with greater intangible assets and the host countries have less knowledge assets in place. Our two stage least square estimation also confirms the negative effect.​

Keywords: Multinational corporations, Knowledge transfer, Intangible assets, Capital structure 

JEL Classification: F23; G32; O33