International Corporate Diversification and Financial Flexibility

If the location of firm operations is relevant for financing, multinationals should have easier access to different foreign sources of funding relative to domestic firms. I document that U.S. multinationals are more likely to borrow from a foreign bank and to issue international bonds than are U.S. domestic firms. Multinationals are less affected than domestic firms by capital market dislocations because of greater funding flexibility. Using the 2007–2009 financial crisis as a capital supply shock, I find that multinationals relied more on foreign funding sources in bank loans and consequently reduced domestic investment less than did domestic firms. Received January 27, 2015; editorial decision March 20, 2017 by Editor David Denis.