Internationalization and firm risk: An upstream-downstream hypothesis

Corporate international diversification theory posits that multinational co rporations (MNCs) should have lower risk and higher financial leverage than purely domestic corporations (DCs). We suggest an alternative upstream-dow nstream hypothesis according to which the overall effect of internationaliz ation on the risk and leverage of MNCs is expected to vary with home and ta rget market conditions. The empirical results are consistent with the sugge sted hypothesis.