There is a growing emphasis in management and economics research upon the importance of financial considerations in analysing the boundaries, governance and performance of corporations. To take one such example, corporate strategy literature identifies a number of links between capital structure and strategy decisions such as investment in R&D and product diversification, and acknowledges that strategies could be affected by the financial constraints faced by the firm ([Kochhar, 1996] and [Kochhar and Hitt, 1998]). As Teece, Pisano, and Sheun, 1997: 521 suggest, 'what a firm can do in short order is often a function of its balance sheet'. As yet, despite recent attempts to promote the agenda ([Agmon, 2006] and [Oxelheim et al., 2001]) the issue of how financing and internationalization decisions interact, the factors that drive these interactions, and their influence upon the international business activities of firms, still remains a relatively unexplored research area (Filatotchev & Piesse, 2009). Moreover, even in those areas at the finance-international business interface which have received some attention, such as the relationship between international expansion and MNE capital structure, empirical studies generate mixed results. For example, Lee and Kwok (1988) find that the agency and bankruptcy costs of debt are higher for internationally diversified firms than comparable domestic corporations, resulting in lower long-term debt ratios. In contrast, Heston and Rouwenhorst (1994) argue that diversification across national boundaries reduces risk more than diversification across industries within one country; while Fatemi, 1984 A. Fatemi, Shareholders benefits from corporate international diversification, Journal of Finance 39 (1984), pp. 1325-1344. Full Text via CrossRefFatemi (1984) maintains that international diversification reduces the expected cost of bankruptcy and allows for increased debt capacity. Chkir and Cosset (2001) suggest that leverage increases with both international and product diversification, and that a strategy combining the two leads to a lower threat of bankruptcy.
Bowe, M., Filatotchev, I., & Marshall, A. (2010). Integrating contemporary finance and international business research. International Business Review, 19(5), 435-445. https://doi.org/10.1016/j.ibusrev.2010.01.005