The U.S. direct investment position abroad measures the net financial claims that U.S. parent companies have on their foreign affiliates (that is, the financial claims that U.S. companies have on their foreign affiliates net of the claims that the affiliates have on their U.S. parent companies). A negative position means that U.S. parent companies are in a net liability position toward their foreign affiliates. This may occur for several reasons; most commonly, a U.S. parent company receives loans from its foreign affiliates in excess of its equity and debt investment in the foreign affiliates, or a U.S. parent company has a negative equity position because its foreign affiliates have incurred sufficiently large losses. Furthermore, a negative position may result from negative reinvested earnings. If a foreign affiliate, during a given period, pays its U.S. parent a dividend in excess of its earnings in that period, the result is negative reinvested earnings. If the accumulation of negative reinvested earnings exceeds the accumulation of other equity and debt investments, the consequence is a negative position.
Similarly, for exactly the reasons discussed in the previous paragraph, it is possible for the foreign direct investment position in the United States to be negative. The foreign direct investment position in the United States measures the net financial claims that foreign parent companies have on their U.S. affiliates (that is, the financial claims that foreign companies have on their U.S. affiliates net of the claims that U.S. affiliates have on their foreign parent companies). A negative position means that foreign parent companies are in a net liability position toward their U.S. affiliates.