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The determinants of firm diversification in UK quoted companies

  • Adrian Gourlay
  • Jonathan Seaton

This paper examines the role of resource-based and governance factors in determining the boundaries of UK quoted companies, measured by both the probability and intensity of market diversification. Using a panel of over 2000 firms for the period 1988 to 2001 it is found that firm-level heterogeneity and industry characteristics account for the variability in diversification behaviour and that resource-based and governance factors interact in a complex manner not necessarily fully explained by the theoretical literature. The results also indicate that the degree of data aggregation has significant implications for the empirical modelling of market diversification.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/0003684042000295610
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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 36 (2004)
Issue (Month): 18 ()
Pages: 2059-2071

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Handle: RePEc:taf:applec:v:36:y:2004:i:18:p:2059-2071
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  1. Lin, Tsai-Fen & Schmidt, Peter, 1984. "A Test of the Tobit Specification against an Alternative Suggested by Cragg," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 174-77, February.
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  3. 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.
  4. Davies, Stephen W. & Rondi, Laura & Sembenelli, Alessandro, 2001. "Are multinationality and diversification complementary or substitute strategies?: An empirical analysis on European leading firms," International Journal of Industrial Organization, Elsevier, vol. 19(8), pages 1315-1346, September.
  5. Adrian Gourlay & Jonathan Seaton, 2003. "Export intensity in UK firms," Applied Economics Letters, Taylor & Francis Journals, vol. 10(8), pages 471-477.
  6. M.A. Utton, 1979. "Diversification and Competition," National Institute Economic Review, National Institute of Economic and Social Research, vol. 89(1), pages 53-55, August.
  7. Berry, Charles H, 1971. "Corporate Growth and Diversification," Journal of Law and Economics, University of Chicago Press, vol. 14(2), pages 371-84, October.
  8. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-88, June.
  9. Haynes, Michelle & Thompson, Steve & Wright, Mike, 2000. "The determinants of corporate divestment in the UK," International Journal of Industrial Organization, Elsevier, vol. 18(8), pages 1201-1222, December.
  10. Montgomery, Cynthia A. & Hariharan, S., 1991. "Diversified expansion by large established firms," Journal of Economic Behavior & Organization, Elsevier, vol. 15(1), pages 71-89, January.
  11. 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.
  12. David J. Denis & Diane K. Denis & Atulya Sarin, 1997. "Managerial Incentives And Corporate Diversification Strategies," Journal of Applied Corporate Finance, Morgan Stanley, vol. 10(2), pages 72-80.
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