The Effect Of International Acquisitions on Firm Leverage


  • Imed Chkir,

  • Jean-Claude Cosset

  • The authors are grateful to William T. Moore (the executive editor) and an anonymous referee who helped improve the paper markedly. We thank Klaus Fischer, Patrice Fontaine, Jean-Marie Gagnon, Lawrence Kryzanowski, Isaac Otchere, Jean-Marc Suret, and Daniel Zeghal for helpful suggestions. We also thank seminar participants at Université Laval, Université d'Ottawa, the 2000 conferences of the Administrative Sciences Association of Canada and of the Northern Finance Association, the 2001 conference of the Association Française de Finance, and the 2001 Financial Management Association annual meeting for helpful comments.


To determine whether corporate international diversification leads firms to increase their leverage, we perform an event study that compares the leverage of corporations before and after they acquire foreign subsidiaries. We find that on average leverage increases from the first to the third year following the acquisition. When we examine the relation between additional debt financing after foreign acquisitions and the characteristics of these acquisitions, we find that in addition to such major determinants as size and profitability, debt financing is explained by geographical and industrial diversification effects.