Firm complexity and debt capacity: evidence from Italian diversified firms

This paper examines the links between product diversification, international diversification and capital structure for a panel of medium and large Italian firms. The Results indicate that product and international diversification individually are positively related to capital structure, but the interactive variable between product and international diversification has a negative and significant coefficient. In contrast with previous empirical evidence, our findings support the hypothesis that the complexity that comes from diversification reduces access to debt. When firms simultaneously engage in both product and international diversification strategies, agency costs of debt and asymmetric information problems may increase, thus reducing debt capacity.