New Developments in Corporate Diversification Strategies

1995 ◽  
Vol 18 (3/4/5) ◽  
pp. 24-33 ◽  
Author(s):  
Michael A. Brost ◽  
Brian H. Kleiner
Keyword(s):  
Corporate Diversification ◽  
New Developments ◽  
Diversification Strategies

Do corporate diversification and earnings management practices affect capital structure?

2015 ◽  
Vol 7 (4) ◽  
pp. 360-378 ◽  
Author(s):  
Ranjitha Ajay ◽  
R Madhumathi
Keyword(s):  
Capital Structure ◽  
Earnings Management ◽  
Management Practices ◽  
Negative Relationship ◽  
Corporate Diversification ◽  
Content Type ◽  
Diversification Strategies ◽  
Market Product ◽  
Diversified Firms ◽  
The Impact

Purpose – The purpose of this paper is to empirically examine the impact of earnings management on capital structure across firm diversification strategies. Design/methodology/approach – The study focuses on firms operating in the manufacturing sector (diversified and focused). Panel data methodology compares diversification strategies and identifies the impact of diversification strategy with earnings management practices on capital structure decision. Findings – International and product diversified firms have lower levels of leverage than focused firms in their capital structure. Asset-based earnings management is positive for diversified (market/product) firms. Earnings management using discretionary expenditure (project based) is found to be higher for market diversified but product-focused firms. Earning smoothing method is found to be significant for focused firms and shows a negative relationship with capital structure. Originality/value – This study offers an insight into the relationship between corporate diversification, earnings management and capital structure decisions of manufacturing firms. The results provide an important contribution to accounting and strategy literature. A distinction is made between market- and product-diversified firms and influence of earnings management practices (asset-based, project-based and earnings smoothing (ESM)) on capital structure decisions. Diversified firms (market/product) tend to have lower levels of leverage than focused firms and earnings management practices within firm groups significantly influence the capital structure decisions.

Corporate diversification strategies and capital structure

2003 ◽  
Vol 43 (1) ◽  
pp. 147-167 ◽  
Author(s):  
Manohar Singh ◽  
Wallace N Davidson ◽  
Jo-Ann Suchard
Keyword(s):  
Capital Structure ◽  
Corporate Diversification ◽  
Diversification Strategies

Geographic and Industrial Corporate Diversification: The Level and Structure of Executive Compensation

2002 ◽  
Vol 17 (1) ◽  
pp. 1-24 ◽  
Author(s):  
Augustine Duru ◽  
David M. Reeb
Keyword(s):  
Executive Compensation ◽  
Ceo Compensation ◽  
Performance Criteria ◽  
Corporate Diversification ◽  
Geographic Diversification ◽  
Compensation Contracts ◽  
Industrial Diversification ◽  
Diversification Strategies ◽  
Ceo Pay ◽  
And Performance

We explore the relation between corporate diversification and CEO compensation. We document that geographic diversification provides a compensation premium, while industrial diversification is associated with lower levels of CEO pay. We also examine the effect of corporate diversification on the structure and performance criteria of CEO compensation contracts. We find that both diversification strategies are associated with a greater use of incentive-based compensation and with a greater reliance on market-based, rather than accounting-based measures of firm performance. Finally, we address the question of whether shareholders reward CEOs for corporate diversification. We document that while value-enhancing geographic diversification is rewarded, non-value-enhancing industrial diversification is penalized.

scholarly journals The Diversification Puzzle: The Role of Asymmetric Information and Insider Trading in Pakistan

2016 ◽  
Vol 21 (2) ◽  
pp. 97-119 ◽  
Author(s):  
Mushtaq Hussain Khan ◽  
Ahmad Fraz ◽  
Arshad Hassan
Keyword(s):  
Asymmetric Information ◽  
Agency Theory ◽  
Insider Trading ◽  
Firm Value ◽  
Corporate Diversification ◽  
Open Market ◽  
Fundamental Issue ◽  
Diversification Strategies ◽  
Management Literature

While corporate diversification is a fundamental issue both in the management literature and in corporate policy, the question that remains is whether it destroys or enhances firm value. This empirical study of the corporate diversification–value relationship for Pakistani firms looks at the role of asymmetric information and insider trading over a 10-year sample period, 2005–14. Using the industrial entropy index and purchase ratio to capture corporate diversification and insider trading, respectively, the study provides empirical evidence that questions the agency theory-based explanation of the corporate diversification–value relationship. Our results show that, in cases of asymmetric information, insiders increase the purchase of their firms’ shares in the open market when diversification is high. This contradicts the corporate diversification–value destruction stance of agency theory as well as the idea that outside investors’ undervaluation occurs due to information asymmetries. These results have strategic implications for corporate diversification strategies and are relevant to firm managers, regulators and shareholders.

scholarly journals The Level of Diversification on the Firms of the Iberian Market

2021 ◽  
Vol 18 ◽  
pp. 978-985
Author(s):  
Gualter Couto ◽  
João Cabral ◽  
Pedro Pimentel ◽  
Rui Alexandre Castanho
Keyword(s):  
Negative Impact ◽  
Corporate Diversification ◽  
Tobin’S Q ◽  
Herfindahl Index ◽  
Continuous Change ◽  
Tobin's Q ◽  
Book Value ◽  
Diversification Strategies ◽  
Security Device ◽  
Diversified Firms

It is a fact that a company’s durability may depend on its capacity to readjust to a world in continuous change. Diversification strategies should be a security device, reduce the risk, and at the same time, search for possible profitable opportunities. Therefore, when a diversified firm follows one of its business sections and realizes that the performance is worse than foreseen, this negative impact may be diminished by other segments with better performance. Contextually, the current study aims to determine a correlation between value and corporate diversification in the Iberian market. We use Tobin’s Q as the measure for value and the Herfindahl Index to measure diversification. In addition to the study of correlation, this paper also analyses the level of diversification for the firms that integrate the Iberian market and if their market value is above or below their book value. Using these metrics, we found a negative correlation between value and diversification in the Iberian Market. In our sample, we also found that highly diversified firms performed worse than focused firms on average. In the Portuguese sample, we were able to determine the level of diversification that maximizes the Tobin’s Q of a firm. According to Tobin's Q, our sample was characterized by a low level of diversification in general and that the companies were slightly overvalued.

Ownership Structure and Corporate Diversification

2006 ◽  
Vol 8 (1) ◽  
pp. 1-19 ◽  
Author(s):  
Yi Zhang ◽  
Xi Li
Keyword(s):  
Firm Performance ◽  
Local Government ◽  
Ownership Structure ◽  
Central Government ◽  
Agency Problems ◽  
State Ownership ◽  
Corporate Diversification ◽  
Listed Firms ◽  
Firm Diversification ◽  
Diversification Strategies

This paper examines the motivation and impact of corporate diversification in Chinese listed firms. We find that in local government owned-firms there is a non-linear relationship between the level of firm diversification and state ownership. As state ownership increases from zero, the level of diversification decreases. After state ownership reaches a certain level, the level of diversification increases as state ownership increases. There is no evidence that ownership is related to corporate diversification in non-state-owned firms or central government-owned firms. We also document that diversification is negatively related to firm performance in local government-owned firms. However, there is no evidence that diversification is negatively related to the firm performance in non-state-owned firms or central government-owned firms. Our findings suggest that agency problems are responsible for local government owned-firms taking value-reducing diversification strategies.

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