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Corporate diversification and debt financing: Do family shareholders protect their control rights?

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  • Vasanthan Subramaniam
  • Mosharrof Hosen

Abstract

The study explored the relationship between corporate diversification and the debt choice of listed 712 Malaysian family firms for the period from 2016 to 2020. Tobit regression results revealed that industrial diversified firms preferred debt financing, while geographically diversified firms rejected debt. With family control, firms that conducted both types of diversification activities rejected debt financing. Further, for the case of maturity structure of debt, family firms engaged in diversification activities tend to borrow short‐term debt, thereby reducing their ownership's risk of dilution and boosting their short‐term market goals by improving the creditors' short‐term monitoring function. Policy implications are discussed.

Suggested Citation

  • Vasanthan Subramaniam & Mosharrof Hosen, 2023. "Corporate diversification and debt financing: Do family shareholders protect their control rights?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 1305-1317, March.
    • Handle: RePEc:wly:mgtdec:v:44:y:2023:i:2:p:1305-1317
    DOI: 10.1002/mde.3748
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