14. Cost of Capital for MNES Compared to Domestic Firms. Theoretically, MNES should be in a better position than their domestic counterparts to support higher debt ratios, because their cash flows are diver- sified internationally. However, recent empirical studies have come to the opposite conclusion. These studies also concluded that MNEs have higher betas than their domestic counterparts.

a. According to these empirical studies, why do MNEs have lower debt ratios than their domestic counterparts?

b. According to these empirical studies, why do MNES have higher betas than their domestic counterparts?