. To what extent do average capital structures vary across different countries?
With the growth in demand for exotic foods, Possum Inc.’s CEO Michael Munger is considering expanding the geographic footprint of its line of dried and smoked low-fat opossum, ostrich, and venison jerky snack packs. Historically, jerky products have performed well in the southern United States, but there are indications of a growing demand for these unusual delicacies in Europe. Munger recognizes that the expansion carries some
Capital structure resembles the components by which the investments in the business are funded. Some companies prefer substantial debt components while some may rely on equity. Multinational corporations have their business in various countries. It is often observed that the same businesses have different capital structure in different countries. This is because countries often follow different accounting standards in different countries.
A study was conducted to control the differences in the average capital across the countries. From this study, it was interpreted that variations in accounting practices can explain much of cross country variations in the capital structure. When these differences in the accounting practices are considered for adjustment of the capital structure of the business, it is similar across the countries.