Diversification and Capital Structure: Some International Evidence

Authors: Pek Yee Low¹; Kung H. Chen²

Source: Review of Quantitative Finance and Accounting, Volume 23, Number 1, July 2004 , pp. 55-71(17)

Publisher: Springer

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Abstract:

This study examines the effects of international and product diversification on capital structure with 232 firms from 30 countries. Results for the full sample show that international diversification is negatively related to financial leverage, but further analyses indicate that this is mainly attributable to US firms. For non-US firms, we fail to find a significant relationship. Results also show that product diversification is positively related to financial leverage, indicating that such diversification allows firms to reduce their risks, thereby enabling firms to carry higher debt levels.

Keywords: international diversification; product diversification; financial leverage; capital structure

Document Type: Research article

DOI: http://dx.doi.org/10.1023/B:REQU.0000037064.15144.04

Affiliations: 1: Department of Accountancy, City University of Hong Kong, Hong Kong, Tel.: 852-2788-7946, Fax: 852-2087-4419., Email: aclow@cityu.edu.hk 2: School of Accountancy, The University of Nebraska-Lincoln, Lincoln, NE 68588-0488, USA, Tel.: 402-472-3360, Fax: 402-472-4100., Email: kchen@unl.edu

Publication date: 2004-07-01