ANALYZING CHANGES IN CREDIT POLICY IN AN INTERNATIONAL ENVIRONMENT

Abstract

This paper derives a model for analyzing the net present value of a change in credit policy, in the presence of exchange rate uncertainty, tax differentials, and potential limitations on raptratiation of profits. When our model is compared to the standard model used in the domestic environment, we find a discrepancy, which we show to be an error in the latter model. We also find that the optimal timing of dividend payments depends upon after‐tax interest rate parity, rather than the widely‐used pretax interest rate parity.

Citation

Riener, K.D. and Soenen, L. (1997), "ANALYZING CHANGES IN CREDIT POLICY IN AN INTERNATIONAL ENVIRONMENT", Managerial Finance, Vol. 23 No. 4, pp. 34-46. https://doi.org/10.1108/eb018619