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Asset Investment Diversification, Bankruptcy Risk And The Mediating Role Of Business Diversification

Author

Listed:
  • VU HUU THANH

    (Faculty of Finance and Banking, Ho Chi Minh City Open University, Vietnam)

  • NGUYEN MINH HA

    (Faculty of Economics and Public Management, Business and Economics Research Group, Ho Chi Minh City Open University, Vietnam)

  • MICHAEL MCALEER

    (Department of Finance, College of Management, Department of Bioinformatics and Medical Engineering, College of Information and Electrical Engineering, Asia University, Taiwan4Discipline of Business Analytics, University of Sydney Business School, Australia5Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam, The Netherlands6Department of Economic Analysis and ICAE, Complutense University of Madrid, Spain)

Abstract

This paper explores the structural relationship among asset investment diversification, business diversification and the bankruptcy risk of firms. Asset investment diversification is divided into two components, namely related and unrelated asset investment diversification, while business diversification includes related and unrelated business diversification. In the hypothetical relationship, business diversification is proposed to play a mediating role to explain the effect of asset investment diversification on bankruptcy risk. Specifically, related and unrelated asset investment diversification affect bankruptcy risk through two mediators, namely related and unrelated business diversification. Hence, it is vital to employ the general linear structural model (GSEM) with panel data on 470 businesses publicly listed in Vietnam from 2008 to 2017. Surprisingly, the empirical results show that both related and unrelated asset diversification have positive impacts on bankruptcy risk. Nevertheless, only related business diversification plays a mediating role between related asset diversification and bankruptcy risk, while unrelated business diversification has an insignificant mediating effect on the relationship between unrelated asset diversification and bankruptcy risk.

Suggested Citation

  • Vu Huu Thanh & Nguyen Minh Ha & Michael Mcaleer, 2021. "Asset Investment Diversification, Bankruptcy Risk And The Mediating Role Of Business Diversification," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 16(01), pages 1-26, March.
    • Handle: RePEc:wsi:afexxx:v:16:y:2021:i:01:n:s2010495221500019
    DOI: 10.1142/S2010495221500019
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