The impact of international diversification on credit scores: Evidence from the UK

Despite the great deal of previous research into international diversification, we know little about the impact of international diversification on firms’ credit scores. Drawing upon the resource-based viewand transaction cost economics, we examine the relationship between international diversification and credit scores by using a large sample of 6,557 UK firms between 2016 and 2017. We find an inverted U-shaped relationship between international diversification and firms’ credit scores, indicating that firm credit score is initially positive but eventually levels off and becomes negative as international diversification increases. In addition, we find that R&D intensity positively moderates the relationshipbetween international diversification and credit score, implying that the credit scores of highly diversified firms improve as they increase their investment in R&D. Further analysis suggests that afirm’s credit score becomes less dependent on international diversification for large firms, firms in concentrated industries, firms in the manufacturing sector, and firms distant from key metropolitan areas, such as London.