The cost of capital: U.S.-based multinational corporations versus U.S. domestic corporations

Using firm-level panel data, this paper examines whether the cost of capital (COC) differs significantly between U.S.-based multinational corporations (MNCs) and U.S. domestic corporations (DCs). The results suggest that U.S.-based MNCs have higher COC than U.S. DCs and that industry importantly influences COC. The study also finds that there is a significant time effect on COC, and the time effect follows the trend of the U.S. economic growth rate. Using a Bayesian Markov chain Monte Carlo approach, we estimate jointly cost of equity, cost of debt, and capital structure, and find that the higher cost of capital for MNCs is due mainly to their higher cost of equity and greater use of equity financing; the cost of debt financing does not differ significantly for MNCs versus DCs.