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Liability of foreignness in capital markets: Institutional distance and the cost of debt

Research output: Contribution to journalArticlepeer-review

Yiwen Gu, Igor Filatotchev, R. Greg Bell, Abdul A. Rasheed

Original languageEnglish
Pages (from-to)142-160
JournalJournal of Corporate Finance
Early online date2 Nov 2017
Accepted/In press27 Oct 2017
E-pub ahead of print2 Nov 2017
PublishedAug 2019


King's Authors


We extend the domain of liability of foreignness (LOF) research to capital markets and evaluate whether firms incur LOF when attempting to raise debt capital abroad. We rely upon multiple conceptualizations of institutional distance to capture the extent to which distance may contribute to LOF in capital markets. Based on a sample of 361 firms from 45 countries over a 24 year time period, we find that institutional distances lead to increased cost of debt. More importantly, we find that frequency of foreign bond issuance helps to mitigate the LOF. We conclude with a discussion of our results and their implications for future research on understanding how firms address LOF when sourcing debt abroad.

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