Corporate International Activity and Debt Financing

Abstract

The literature provides conflicting evidence on the relation between corporate international activity and the cost and level of debt financing. Based on this evidence, we explore the impact of firm internationalization on debt financing. Using a market based sample of U.S. firms, we find significant evidence of a non monotonic relation between firm international activity and both the cost and level of debt financing. Specifically, we find that, contrary to prior research, firm international activity is, on average, associated with a 13% reduction in the cost of debt financing and a 30% increase in firm leverage.

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*Sattar A. Mansi is an Assistant Professor of Finance at Texas Tech University. His primary area of research lies in corporate finance, fixed income securities, and international finance. His research is related to topical areas such as corporate diversification, capital structure, corporate governance, debt financing, and the term structure of interest rates.

**David M. Reeb is an Assistant Professor in the Kogod School of Business at American University. His primary areas of research are international and corporate finance. His research is related to topical areas such as CEO compensation contracts, corporate diversification, analysts' forecasts, capital structure choices in multinational firms, cost of debt financing, bankruptcy, board composition, and the impact of family ownership and control in public firms.

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Mansi, S., Reeb, D. Corporate International Activity and Debt Financing. J Int Bus Stud 33, 129–147 (2002). https://doi.org/10.1057/palgrave.jibs.8491008

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