The Relationship between Internationalization and Capital Structures of Taiwan Firms

Using a sample of Taiwan firms over the period of 2001 to 2005, this study investigates the relationship between internationalization and a firm's capital structure, measured by the leverage ratio. Univariate tests show that multinational corporations (MNCs) are significantly less leveraged than domestic corporations (DCs). In addition, MNCs have lower business risks, lower exchange rate risks and higher agency costs, and are more profitable than DCs. The results of multivariate regressions show that some threshold of internationalization exists. The degree of internationalization is negatively associated with a firm's leverage ratio only before this threshold, and there will be a positive relationship beyond this threshold