International Sourcing and Capital Structure

Review of Finance, Forthcoming

51 Pages Posted: 26 Aug 2012 Last revised: 26 Oct 2015

See all articles by Cheol S. Eun

Cheol S. Eun

Georgia Institute of Technology - Finance Area

Lingling Wang

University of Connecticut - Department of Finance

Date Written: February 5, 2015

Abstract

Motivated by the rising importance of international sourcing by U.S. firms in recent decades, we study the influence of international sourcing on capital structure. We find that international sourcing has a significant negative influence on financial leverage. The negative influence is stronger in industries that have high R&D intensities and are financially constrained. However, the negative relation is mitigated when suppliers are from countries with strong legal environments and when the supplier markets are more competitive. Overall, our findings suggest that relationship-specific investments, supplier market characteristics, and financial market conditions are key determinants of the sourcing-leverage relation.

Keywords: Capital structure, International sourcing, Relationship-specific investments, Supplier market characteristics, Financial constraints

JEL Classification: G32, G33, M55

Suggested Citation

Eun, Cheol S. and Wang, Lingling, International Sourcing and Capital Structure (February 5, 2015). Review of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2135878 or http://dx.doi.org/10.2139/ssrn.2135878

Cheol S. Eun

Georgia Institute of Technology - Finance Area ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Lingling Wang (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

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