What Is Involved in International Corporate Finance?

International corporate finance is a broad-based attempt by large companies located in more than one nation to manage their assets effectively. The components of international corporations that are of the most immediate day-to-day concern by management include working capital, cash, and short-term financing to keep operations running smoothly. Of slightly longer-term concern in the arena of international corporate finance is the management of debt and inventory.

While the practice of international corporate finance has spread through many nations that are the headquarters locations of large multi-national corporations, such as the US, Germany, and Japan, these nations take markedly different approaches to managerial finance. This contrasts with the widely-held belief in business that there is generally just one best way for corporate governance and finance regardless of location. Preset cultural standards and national laws can have a dramatic impact on how international corporate finance is conducted, however.

Where corporations are publicly-traded companies, one of the key differences between industrialized nations is in how much influence investors have over the decisions and the direction of the corporation. Large institutional or individual investors in western nations like the US have stricter regulatory restraints to comply with in their attempt to chart the direction of a company than do investors in Japan, for instance. By contrast, alternative forms of capital investment into corporations are much more readily supported and obtained in the US than in Japan and Germany, where, as of 1996, the regulatory and taxation environment has suppressed securities trading more than in the US. Disclosure requirements for corporations to fully inform potential investors and shareholders in the US of the risk and financial state of a corporation are much more strictly regulated than in Germany or Japan. This practice of full disclosure makes such corporations more appealing to foreign investors and passively restricts investment into Japanese- or German-based international corporations.

Aside from such issues, international corporate finance follows common themes regardless of the company's native point of origin. Capital, cash, and short-term financing are managed through local or regional banking systems via loans, electronic payments, and periodic account 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 out for the next day's business. Zero balance accounting is also commonly practiced, where each department in the international corporate finance entity operates independent financial practices, but all money is channeled from each location into one principal bank account.

Debt and inventory management are both targeted towards reducing operating costs and increasing profits. With debt, this means establishing credit policies with vendors and customers that encourage company growth, while maintaining revenue flow to a point where the corporation is not seen as being under-capitalized and risky in which to invest or with which to do business. Inventory management is focused not only on the efficient flow of goods and services across departments and national borders, but also with reducing costs in this process through increased efficiency practices and obtaining raw materials at lower prices.

In the international corporate finance arena, often the financial risks that a company has are more important than the opportunities it may offer to capital investment. The practice of financial risk management attempts to address this issue in a broad sense through various financing avenues, such as options and futures trading, the use of hedge funds, and by employing the services of investment banks. Businesses also reach beyond the public sector to obtain several types of private equity investment, such as venture, growth, or mezzanine capital. Other options can include seeking angel investors or allowing a financial sponsor to initiate a leveraged buyout.