Internationalization, capital structure, and cost of capital: Evidence from French corporations

The paper examines the relationship between international diversification, financial structure, and their individual and interactive implications for the combined debt and equity cost of capital for a sample of French corporation. We report that the degree of international diversification positively associates with higher total and long-term debt ratios. Our evidence suggests a non-linear inverted U-shape relationship between the degree of international diversification and short term debt financing. We also find that internationally diversified firms support higher level of debt financing that directly results in reduction of overall cost of capital despite higher equity risk. More significantly, we find that even after controlling for the effects of the degree and composition of debt financing, equity risk, firm size, managerial agency costs, and asset structure, higher degree of international diversification results in lower overall-combined debt and equity-cost of capital.