The Effect of International Diversification on Corporate Financing Policy

Ali M. Fatemi, DePaul University

Abstract

The purpose of this study is to investigate whether international operations have a discernible effect on the financing policies of U.S.- based firms. Results obtained indicate that firms with notable foreign involvement have target leverage ratios significantly below those of their domestic counterparts. It is also found that multinationals secure a greater portion of their borrowing from short-term sources. These results are rationalized in terms of the market imperfections that the multinationals face and/or exploit.