We provide evidence on the agency cost explanation for corporate diversification.
We find that the level of diversification is negatively related to managerial equity
ownership and to the equity ownership of outside blockholders. In addition, we report
that decreases in diversification are associated with external corporate control
threats, financial distress, and management turnover. These findings suggest that
agency problems are responsible for firms maintaining value-reducing diversification
strategies and that the recent trend toward increased corporate focus is attributable
to market disciplinary forces.
Статья используется в учебной программе
Seminar in Corporate Finance, Howe J.S.