IDEAS home Printed from https://ideas.repec.org/p/eti/dpaper/25058.html
   My bibliography  Save this paper

Capital Market Conditions and the Value of Corporate Diversification for Japanese Firms

Author

Listed:
  • Tatsuo USHIJIMA
  • Takafumi SASAKI

Abstract

This study investigates the value of corporate diversification in Japanese firms with particular attention to its dynamics. Our analysis, based on a panel of listed nonfinancial firms, indicates that the value of diversification increases substantially when external capital is costlier or more difficult to access. Moreover, this tendency is more pronounced for firms in which divisional cash flows are less positively correlated. This pattern implies that coinsurance is instrumental to the observed association between the value of diversification and capital market conditions. We also find that this association is stronger for firms with higher bankruptcy risk, which is consistent with the notion that the financing advantages of diversified firms improve their ability to fulfill contractual obligations. These results suggest that the value of corporate diversification fluctuates because macroeconomic shocks change the relative value of the internal and external capital markets.

Suggested Citation

  • Tatsuo USHIJIMA & Takafumi SASAKI, 2025. "Capital Market Conditions and the Value of Corporate Diversification for Japanese Firms," Discussion papers 25058, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:25058
    as

    Download full text from publisher

    File URL: https://www.rieti.go.jp/jp/publications/dp/25e058.pdf
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eti:dpaper:25058. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: TANIMOTO, Toko (email available below). General contact details of provider: https://edirc.repec.org/data/rietijp.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.