Foreign activity effects and capital structure: Brazilian evidence

This paper analyzes whether Brazilian companies with foreign activities (MNC) have different capital structure from those with mainly local activities (DC). If so, is the upstream-downstream hypothesis prediction valid which states that internationalized companies use more debt than those with local activities? Our sample consists of 131 companies within the period from 2004-2008. We found that Brazilian MNCs use more debt due to international activities, with 9.6% more leverage of which 5.8% comes from long-term sources. Our results also show that international activity is positively related to foreign debt usage, and on average MNCs carry 12.7% more foreign debt in their capital structure. Although the access to international capital markets is frequently suggested as a motivation for companies to internationalize, this is the first study to test empirically whether international activity and debt financing are related.