Capital structure and corporate diversification: Is debt a panacea for the diversification discount?

2020 ◽  
Vol 111 ◽  
pp. 105728 ◽  
Author(s):  
Gabriel de la Fuente ◽  
Pilar Velasco
Keyword(s):  
Capital Structure ◽  
Corporate Diversification ◽  
Diversification Discount

Do corporate diversification and earnings management practices affect capital structure?

2015 ◽  
Vol 7 (4) ◽  
pp. 360-378 ◽  
Author(s):  
Ranjitha Ajay ◽  
R Madhumathi
Keyword(s):  
Capital Structure ◽  
Earnings Management ◽  
Management Practices ◽  
Negative Relationship ◽  
Corporate Diversification ◽  
Content Type ◽  
Diversification Strategies ◽  
Market Product ◽  
Diversified Firms ◽  
The Impact

Purpose – The purpose of this paper is to empirically examine the impact of earnings management on capital structure across firm diversification strategies. Design/methodology/approach – The study focuses on firms operating in the manufacturing sector (diversified and focused). Panel data methodology compares diversification strategies and identifies the impact of diversification strategy with earnings management practices on capital structure decision. Findings – International and product diversified firms have lower levels of leverage than focused firms in their capital structure. Asset-based earnings management is positive for diversified (market/product) firms. Earnings management using discretionary expenditure (project based) is found to be higher for market diversified but product-focused firms. Earning smoothing method is found to be significant for focused firms and shows a negative relationship with capital structure. Originality/value – This study offers an insight into the relationship between corporate diversification, earnings management and capital structure decisions of manufacturing firms. The results provide an important contribution to accounting and strategy literature. A distinction is made between market- and product-diversified firms and influence of earnings management practices (asset-based, project-based and earnings smoothing (ESM)) on capital structure decisions. Diversified firms (market/product) tend to have lower levels of leverage than focused firms and earnings management practices within firm groups significantly influence the capital structure decisions.

Corporate diversification strategies and capital structure

2003 ◽  
Vol 43 (1) ◽  
pp. 147-167 ◽  
Author(s):  
Manohar Singh ◽  
Wallace N Davidson ◽  
Jo-Ann Suchard
Keyword(s):  
Capital Structure ◽  
Corporate Diversification ◽  
Diversification Strategies

Corporate diversification

2018 ◽  
Vol 17 (3) ◽  
pp. 405-424 ◽  
Author(s):  
Garrett C.C. Smith ◽  
Jeffrey M. Coy
Keyword(s):  
Design Methodology ◽  
Negative Relationship ◽  
Corporate Diversification ◽  
Diversification Discount ◽  
Firm Level ◽  
Content Type ◽  
Long Run ◽  
Fundamental Value ◽  
Diversified Firms ◽  
Investor Preference

Purpose The purpose of this study is to compare two theories that relate the proportion of diversified firms in the economy and the implied discount for diversified firms: the first is a real-options model predicting a positive relationship between the discount and management’s choice to operate a diversified firm; the second is based on catering theory, in which a negative relationship is predicted, as management is attentive to investor preference concerning diversified firms. Design/methodology/approach This study proposes a new aggregate measure of the diversification discount. The authors’ measure allows for decomposition of the discount into firm-level mispricing, industry-level mispricing and long-run fundamental value components. Findings Results support a catering theory of diversification. The discount appears to be the result of firm-level mispricing. Thus, providing an explanation for why, in light of the observed discount, a large number of diversified firms persist. Originality/value To the authors’ knowledge, this is the first study to provide evidence that firm-level mispricing may drive the observed diversification discount.

scholarly journals Effect of Ownership Structure on Corporate Diversification of Listed Firms in Kenya

2019 ◽  
Vol 2 (5) ◽  
pp. 29-46
Author(s):  
Peninah Jepkogei Tanui ◽  
Josephat Cheboi Yegon ◽  
Ronald Bonuke
Keyword(s):  
Capital Structure ◽  
Institutional Ownership ◽  
Target Population ◽  
Foreign Ownership ◽  
Moderating Effect ◽  
Corporate Diversification ◽  
Listed Firms ◽  
Low Levels ◽  
The Relationship

Purpose - This paper aimed to examine the moderating role of capital structure in the relationship between institutional and foreign ownerships on corporate diversification of listed firms at the Nairobi Securities Exchange, Kenya. Design/Methodology - The target population comprised of all the 65 listed firms at Nairobi Securities Exchange in Kenya. However, the inclusion criteria were based on all firms listed at the NSE from 2003 to 2017. Findings - Capital structure significantly moderated the relationship between institutional ownership and corporate diversification. However, there was a statistically insignificant moderating effect of capital structure in the relationship between foreign ownership and corporate diversification. Practical Implications - As to increase diversification, listed firms are suggested to have low levels of capital structure and institutional ownership. Furthermore, low levels of foreign ownership and high capital structure is vital in attaining high diversification levels. Originality - The study contribution is the moderating effect of capital structure in institutional ownership - corporate diversification linkage.

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