Advanced Search
MyIDEAS: Login

Corporate Diversification: Good for Some Bad for Others

Contents:

Author Info

  • Felipe Balmaceda

    ()

Abstract

In this paper a model based on conflicts of interest between shareholders, the CEO and divisional managers is developed to explain why corporate diversification is good for some firms and bad for others. It is shown that when the decision to diversify is endogenous, whether diversification destroys value depends on the severity of con‡icts of interests and the complementarities across divisions and not, as usual in the literature that explains value-decreasing diversification, on the efficiency of internal capital markets.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.dii.uchile.cl/~cea/sitedev/cea/www/download.php?file=documentos_trabajo/ASOCFILE120030326144345.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 141.

as in new window
Length:
Date of creation: 2002
Date of revision:
Handle: RePEc:edj:ceauch:141

Contact details of provider:
Web page: http://www.dii.uchile.cl/cea/
More information through EDIRC

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Gordon M Phillips & Vojislav Maksimovic, 1998. "Optimal Firm Size and the Growth of Conglomerate and Single-Industry Firms," Working Papers 98-14, Center for Economic Studies, U.S. Census Bureau.
  2. Hyun-Han Shin & Rene M. Stulz, 1996. "An Analysis of Divisional Investment Policies," NBER Working Papers 5639, National Bureau of Economic Research, Inc.
  3. Matsusaka, John G, 2001. "Corporate Diversification, Value Maximization, and Organizational Capabilities," The Journal of Business, University of Chicago Press, vol. 74(3), pages 409-31, July.
  4. Steven Kaplan & Michael S. Weisbach, 1992. "The Success of Acquisitions: Evidence From Disvestitures," NBER Working Papers 3484, National Bureau of Economic Research, Inc.
  5. Stulz, ReneM., 1990. "Managerial discretion and optimal financing policies," Journal of Financial Economics, Elsevier, vol. 26(1), pages 3-27, July.
  6. Karl Lins & Henri Servaes, 1999. "International Evidence on the Value of Corporate Diversification," Journal of Finance, American Finance Association, vol. 54(6), pages 2215-2239, December.
  7. Benjamin E. Hermalin & Michael L. Katz, 1994. "Corporate Diversification and Agency," Industrial Organization 9402001, EconWPA, revised 15 Nov 1996.
  8. Larry Lang & Eli Ofek & Rene M. Stulz, 1995. "Leverage, Investment, and Firm Growth," NBER Working Papers 5165, National Bureau of Economic Research, Inc.
  9. Randall Morck & Andrei Shleifer & Robert W. Vishny, 1989. "Do Managerial Objectives Drive Bad Acquisitions?," NBER Working Papers 3000, National Bureau of Economic Research, Inc.
  10. Hill, Charles W L, 1988. "Internal Capital Market Controls and Financial Performance in Multidivisional Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 37(1), pages 67-83, September.
  11. Meyer, Margaret A & Milgrom, Paul & Roberts, Donald John, 1992. "Organizational Prospects, Influence Costs, and Ownership Changes," CEPR Discussion Papers 665, C.E.P.R. Discussion Papers.
  12. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  13. Raghuram Rajan & Henri Servaes & Luigi Zingales, 2000. "The Cost of Diversity: The Diversification Discount and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(1), pages 35-80, 02.
  14. Paolo Fulghieri & Laurie Simon Hodrick, 2006. "Synergies and Internal Agency Conflicts: The Double-Edged Sword of Mergers," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(3), pages 549-576, 09.
  15. David S. Scharfstein & Jeremy C. Stein, 2000. "The Dark Side of Internal Capital Markets: Divisional Rent-Seeking and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(6), pages 2537-2564, December.
  16. Jeremy C. Stein, 1995. "Internal Capital Markets and the Competition for Corporate Resources," NBER Working Papers 5101, National Bureau of Economic Research, Inc.
  17. Argyres, Nicholas S., 1995. "Technology strategy, governance structure and interdivisional coordination," Journal of Economic Behavior & Organization, Elsevier, vol. 28(3), pages 337-358, December.
  18. Matsusaka, John G. & Nanda, Vikram, 2002. "Internal Capital Markets and Corporate Refocusing," Journal of Financial Intermediation, Elsevier, vol. 11(2), pages 176-211, April.
  19. Steven N. Kaplan & Mark Mitchell & Karen Wruck, 2000. "A Clinical Exploration of Value Creation and Destruction in Acquisitions, Organizational Design, Incentives, and Internal Capital Markets," NBER Chapters, in: Mergers and Productivity, pages 179-238 National Bureau of Economic Research, Inc.
  20. Sandro Brusco & Fausto Panunzi, 2002. "Reallocation of Corporate Resources and Managerial Incentives in Internal Capital Markets," CESifo Working Paper Series 735, CESifo Group Munich.
  21. Stein, Jeremy C., 2003. "Agency, information and corporate investment," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 2, pages 111-165 Elsevier.
  22. Weisbach, Michael S., 1995. "CEO turnover and the firm's investment decisions," Journal of Financial Economics, Elsevier, vol. 37(2), pages 159-188, February.
  23. Servaes, Henri, 1996. " The Value of Diversification during the Conglomerate Merger Wave," Journal of Finance, American Finance Association, vol. 51(4), pages 1201-25, September.
  24. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  25. Yakov Amihud & Baruch Lev, 1981. "Risk Reduction as a Managerial Motive for Conglomerate Mergers," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 605-617, Autumn.
  26. Owen Lamont, 1996. "Cash Flow and Investment: Evidence from Internal Capital Markets," NBER Working Papers 5499, National Bureau of Economic Research, Inc.
  27. Toni M. Whited, 2001. "Is It Inefficient Investment that Causes the Diversification Discount?," Journal of Finance, American Finance Association, vol. 56(5), pages 1667-1691, October.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:edj:ceauch:141. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.