Debt financing puzzle and internationalization

Research output: Contribution to journalArticleResearchpeer-review

4 Citations (Scopus)


Purpose: This study aims to examine the relation between long-term debt and internationalization in the presence of the agency costs of debt and business risk. Design/methodology/approach: Sample firms consist of 517 non-financial listed firms in Malaysia, with 4,197 firm-year observations from the year 2000 to 2014. This study uses panel data regressions and a series of robustness tests to examine the hypotheses. Findings: The results show that multinational corporations (MNCs) are more likely to sustain less long-term debt than domestic corporations (DCs) to mitigate the costs related to agency problem and firm risk. Meanwhile, foreign-based MNCs maintain less long-term debt than local-based firms, and the finding is more significant at a higher degree of internationalization. Robustness tests confirm the negative relations. Research limitations/implications: The findings indicate that the ongoing debate on the debt financing puzzle can be explained by internationalization. Moreover, the findings suggest that in addition to the systematic differences between MNCs and DCs, studies on the debt financing and internationalization should also account for the systematic differences among MNCs such as the local-based MNCs, foreign-based MNCs and DCs that later expand their business operations abroad. Practical implications: MNCs have to be responsive to the diverse institutional environments as they diversify their business operations geographically. When the adverse effects of internationalization outweigh the benefits, MNCs could use the long-term debt financing decision to mitigate the costs of doing business abroad. This is because debt financing is also a primary concern in the corporate financial decisions for the maximization of shareholders’ wealth. Originality/value: This study contributes to the debt financing literature from the international perspective by providing evidence from an emerging market. In addition, this study highlights the importance of recognizing firms by their firm-specific characteristics, such as internationalization, given the systematic differences among firms.

Original languageEnglish
Pages (from-to)33-56
Number of pages24
JournalJournal of Asia Business Studies
Issue number1
Publication statusPublished - 7 Jan 2019
Externally publishedYes


  • Agency costs of debt
  • Debt financing
  • Multinational corporations
  • Risk

Cite this