Corporate Governance and Corporate Diversification Strategies

In this paper we wish to analyze the causality relationship between corporate governance and the corporate diversification strategies in the context of the global economic crisis. For the beginning, we have studied several opinions of famous specialists of the area. The analysis that we have elaborated continued with the pointing out of some theories laying at the foundation of the corporate governance. Corporate governance is based on the theory of the organization and the expenses it implies, but also on the attempts to clarify the relationship between the several actors to the determination of management and corporations’ operation. The main component of the study concentrated on the causality relationship corporate governance – corporate diversification. We have first analyzed the most well known reasons to approach diversification: economies of scale and range (synergies); the power on the market; stability of the profit; improvement of the financial performance; growth of the company’s size. Starting from these analyses, we have identified the relationship between the company’s value and the structures of the corporate governance in the context of diversification. In consequence, a number of advantages obtained by the manager as a result of the diversification prevent him from adopting a concentrated position for the company. The one suffering from these actions is the company itself, which is submitted to a value reduction because of the inefficient policies based on agency conflicts on the level of the division or following the lack of managerial experience in multiple domains.