Internationalization and Zero Leverage

Abstract

Despite growing attention on the role of internationalization in capital structure and the increasing adoption of zero-leverage policies by multinationals (MNC), no study examines the effect of internationalization on zero leverage. Using UK data, we present the first empirical evidence of a positive and significant relationship, which increases in the level of internationalization both statistically and economically. We find that the motivation for zero leverage differs between MNC and domestic firms (DOM). Whilst the major driving factor for MNC is the maintenance of financial flexibility, financial constraints motivate DOM.

Keywords: Capital structure, Zero leverage, Internationalization, Multinational corporations

JEL Classification: F23, G30, G32