Cui bono? An empirical investigation into risk benefits of corporate diversification

2017 ◽  
Vol 16 (4) ◽  
pp. 429-450 ◽  
Author(s):  
Jonas P Haug ◽  
Ulrich Pidun ◽  
Dodo zu Knyphausen-Aufseß
Keyword(s):  
Systematic Risk ◽  
Indirect Costs ◽  
Corporate Diversification ◽  
Total Risk ◽  
Bankruptcy Risk ◽  
Firm Diversification ◽  
Unrelated Diversification ◽  
Synergy Effects ◽  
Diversified Firms ◽  
The Impact

While the diversification–performance link is well covered in strategy research, we know much less about the link between firm diversification and risk. This article draws from modern portfolio theory and corporate diversification theory to derive a comprehensive set of hypotheses on the impact of related and unrelated diversification on the systematic risk, total risk, and bankruptcy risk of a firm. Based on a large international sample, we find the portfolio effect to be more important than previously thought, while synergy effects appear to be largely counterbalanced by the direct and indirect costs of diversification. Specifically, we find that systematic risk is not reduced by corporate diversification, while bankruptcy risk is significantly lower in diversified firms, possibly leading to conflicts between shareholders and other stakeholder groups.

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 and firm value: evidence from emerging markets

2015 ◽  
Vol 10 (3) ◽  
pp. 294-310 ◽  
Author(s):  
Elif Akben Selçuk
Keyword(s):  
Emerging Markets ◽  
Firm Value ◽  
Fixed Effects ◽  
Generalized Method Of Moments ◽  
Corporate Diversification ◽  
Fixed Effects Model ◽  
Developed Country ◽  
Content Type ◽  
Diversified Firms ◽  
The Impact

Purpose – The purpose of this paper is to investigate the impact of corporate diversification on firm value in a sample of nine emerging markets including Brazil, Chile, Indonesia, Malaysia, Philippines, Poland, South Africa, Thailand, and Turkey. For the purpose of this study, a company is classified as diversified when it is operating in two or more lines of business defined by the two-digit SIC codes. Design/methodology/approach – Employing panel data from 1,568 companies for the period 2005-2010, this paper estimates both a fixed effects model and a dynamic generalized method of moments model. Data are collected both at company level and segment level within each firm. Findings – Overall, analysis results suggest that, for the period from 2005 to 2010, diversified firms in emerging markets are valued more compared to single-segment firms operating in similar industries, providing support for diversification premium. Originality/value – The effect of diversification on company value in emerging markets is an important managerial and public policy concern. Although the literature on developed country diversified firms is rich, only a few studies have examined diversification-value relationship in the context of developing countries. Furthermore, most previous research on the value effects of corporate diversification in emerging markets has taken the form of case studies within countries and concentrated on the 1990s. This paper tries to fill these gaps by using a larger sample and more recent data and methodology.

scholarly journals Research and Development and Firm Risk

2015 ◽  
Vol 9 (3) ◽  
pp. 7-26
Author(s):  
J. H. (Henk) Von Eije ◽  
Matthijs Suurmeijer ◽  
Peter Smid
Keyword(s):  
Research And Development ◽  
Systematic Risk ◽  
Downside Risk ◽  
Total Risk ◽  
Firm Risk ◽  
Industry Competition ◽  
Asset Liquidity ◽  
And Control ◽  
The Impact ◽  
E Mail

J. H. (Henk) von Eije - University of Groningen, Faculty of Economics and Business. E-mail: [email protected] Matthijs Suurmeijer - University of Groningen, Faculty of Economics and Business. Email: [email protected] Peter Smid - Dr, University of Groningen, Faculty of Economics and Business. E-mail: [email protected] Spending on R&D has grown faster than other investments. This may result in higher return and higher risk. We focus on the latter and examine how research and development (R&D) affects the risks of US firms. We analyze the impact on the firm’s beta, its systematic and idiosyncratic risk, and the combination of the latter two (total risk). Because investors prefer upside to downside risk, we also analyze whether downside risk is also influenced by R&D. We use panel and quantile regressions and control for dividend payouts, growth, leverage, asset liquidity, firm size, earnings variability, firm age and industry competition. We then show that the impact is positive and highly significant for beta, systematic risk and total risk. The impact on systematic risk contrasts to the finding by McAlister et al. (2007) who find that R&D insulates firms from market downturns and thereby lowers systematic risk. The increases in risks are, moreover, stronger at higher relative levels of R&D spending. Unfortunately for investors, downside risk is also increasing with relative R&D spending. The results may make it also more difficult for managers to defend R&D investments. R&D may indeed generate future returns, but also adds to the next year’s risk. The impact on systematic risk contrasts to the finding by McAlister et al. [2007] that R&D insulates firms from market downturns and thereby lowers systematic risk. While the magnitudes of the effects are small, the impact is relevant when compared with other accounting variables included in the model, especially for beta and systematic risk. Apart from this, there are strong indications that the hypothesized relationis non-linear.

scholarly journals Pengaruh Kinerja Non Keuangan (Environmental, Social, Governance) terhadap Resiko Investasi Perusahaan

2021 ◽  
Vol 7 (2) ◽  
pp. 155-165
Author(s):  
Agus Triyani ◽  
Suhita Whini Setyahuni ◽  
Fiki Durrotul Makwuna
Keyword(s):  
Negative Impact ◽  
Systematic Risk ◽  
Sustainability Reporting ◽  
Ordinary Least Squares ◽  
Least Squares Regression ◽  
Total Risk ◽  
Social Governance ◽  
The Impact ◽  
The Relationship ◽  
Practical Implications

This study intends to investigate the impact of sustainability information on the level of firm’s risk. This study uses 103 firms-years observation of public listed companies in Indonesia during 2012 to 2018. Ordinary least squares regression analysis is employed to tested the hypotheses. ESG scores Bloomberg is used as an indicator of sustainability reporting. The theory used in this study is Signaling theory, which is an action taken by the company to provide instructions for investors on how to view the companies prospects. The findings indicate that social information can decrease the level of firm’s risk. Additionally, environmental and governance information have a negative impact on systematic risk only. Neither environmental nor governance information have an impact on non-systematic risk and total risk. This study contributes to the practical implications, especially on how to consider sustainability information on investment’s valuation models. This study also gives a fruitful insight to the literature by giving empirical evidence on the relationship between sustainability information and corporate’s risk.

Attitude of bank credit managers and analysts towards firm diversification in Mozambique

2017 ◽  
Vol 9 (3) ◽  
pp. 182-204
Author(s):  
Ibeawuchi Ibekwe
Keyword(s):  
Cash Flows ◽  
Bank Credit ◽  
Diversification Discount ◽  
Chi Square ◽  
Content Type ◽  
Corporate Managers ◽  
Firm Diversification ◽  
Unrelated Diversification ◽  
Chi Square Test ◽  
Diversified Firms

PurposeThe purpose of this paper is to survey bank credit managers and analysts in Mozambique regarding their attitude toward firm diversification. Design/methodology/approachForty-five credit managers and analysts from 23 banks in Mozambique were surveyed about their views on diversification and diversified firms. Questionnaires were used. Data were analyzed using chi-square test and binomial test. FindingsCredit analysts and managers in Mozambique have a generally positive attitude toward diversification. This is mainly due to the coinsurance effects and stability of cash flows that diversification could provide. They, however, prefer moderately diversified to highly diversified firms and related to unrelated diversified firms. This is a puzzle, given the expectation that greater unrelated diversification is better able to provide coinsurance. Practical implicationsThe study provides information that is useful for understanding the diversification–cost of capital relationship and could help corporate managers in making capital structure decisions. Originality/valuePrevious researchers have not studied the attitude of credit managers/analysts toward diversification in Mozambique using the survey approach. The study contributes to the literature on diversification and access to external finance, the diversification discount and cash holding behavior of firms.

Benefits or costs? The effects of diversification with cross-industry knowledge on corporate value under crisis situation

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Zhi Li ◽  
Jiuchang Wei ◽  
Dora Vasileva Marinova ◽  
Jingjing Tian
Keyword(s):  
Tacit Knowledge ◽  
Firm Value ◽  
Corporate Diversification ◽  
Public Companies ◽  
Content Type ◽  
Corporate Transparency ◽  
Crisis Situation ◽  
Unrelated Diversification ◽  
Knowledge Barriers ◽  
Diversified Firms

Purpose This paper aims to explore the explanations of “information effect” and “agency effect” of corporate diversification with cross-industry knowledge under a crisis situation. Design/methodology/approach Based on an event study of 203 public companies’ crises in China between 2008 and 2018, the authors verify the information and agency effects of corporate diversification under a crisis situation by, respectively, examining the effects of interactions of corporate unrelated diversification with corporate transparency and knowledge deficiency attribution on the stock market’s responses to the crises. Findings It is found that corporate unrelated diversification serves as a buffer in protecting firm value while attribution of knowledge deficiency can be a burden. The buffering effect is stronger when the corporate transparency is higher but weaker when the crisis is attributed to be caused by corporate tacit knowledge deficiency. Practical implications Unrelated diversified firms should strengthen information communication with stakeholders so as to break down the stakeholders’ cross-industry knowledge barriers, and thus protect their own value at the crisis’ onset. Also, they can further buffer the loss by reducing stakeholders’ perceptions of the corporate tacit knowledge deficiency revealed in the crisis. Originality/value This study is the first to illustrate that the information and agency effects of corporate diversification strategy can be partially explained under a crisis situation, which provides meaningful insights about how firms can conduct knowledge management in their daily operations to deal better with corporate crises.

scholarly journals The Value of Vaccination in Older Adults: The Why

2020 ◽  
Vol 4 (Supplement_1) ◽  
pp. 806-807
Author(s):  
Philip Buck
Keyword(s):  
Older Adults ◽  
Time Horizon ◽  
Pneumococcal Disease ◽  
Population Aging ◽  
Indirect Costs ◽  
Health Behavior Change ◽  
Vaccine Preventable Diseases ◽  
Time Period ◽  
The Us ◽  
The Impact

Abstract The incidence of vaccine-preventable diseases remains high among older adults in the US, despite longstanding immunization recommendations, and is projected to increase as the population ages. The impact of US population aging on the burden of four vaccine-preventable diseases (influenza, pneumococcal disease, shingles, and pertussis) was modeled over a 30-year time horizon, with cumulative direct and indirect costs increasing from $378 billion over 10 years to $1.28 trillion over 30 years. Compared to current levels of vaccination coverage, increasing coverage was predicted to avert over 33 million cases of disease and greater than $96 billion in disease-associated costs, with a corresponding increase in vaccination costs of approximately $83 billion over the entire 30-year time period. Specific examples of cost-effectiveness analyses that assess the epidemiologic and economic impact of vaccination against shingles and pertussis in older adults will be discussed. Part of a symposium sponsored by the Health Behavior Change Interest Group.

scholarly journals POS0530 HOW DOES MULTIMORBIDITY IMPACT ON THE DIRECT AND INDIRECT COSTS IN PATIENTS WITH RHEUMATOID ARTHRITIS?

2021 ◽  
Vol 80 (Suppl 1) ◽  
pp. 498.3-499
Author(s):  
P. H. Hsieh ◽  
C. Geue ◽  
O. Wu ◽  
E. McIntosh
Keyword(s):  
Rheumatoid Arthritis ◽  
Early Rheumatoid Arthritis ◽  
Employment Status ◽  
Functional Disability ◽  
Hospital Admissions ◽  
Information Service ◽  
Indirect Costs ◽  
Direct Costs ◽  
Direct And Indirect Costs ◽  
The Impact

Background:Comorbidities are prevalent in patients with rheumatoid arthritis (RA) and associated with worse outcomes as well as higher economic burden. Little is known about the impact of multimorbidity on the direct and indirect costs of RA. Evidence of the incremental scale of these multimorbidity costs will usefully inform RA interventions and policies.Objectives:The aim of this study was to describe how multimorbidity impacts on the cost-of-illness, including direct and indirect costs, in patients with RA.Methods:The Scottish Early Rheumatoid Arthritis (SERA) is a registry of patients newly presenting with RA since 2011. It contains data on patient characteristics, clinical outcomes, health-related quality of life, and employment status data. These data were linked to routinely recorded hospital admissions and primary care prescribing data. Direct costs were estimated by applying relevant unit costs to healthcare resource use quantities. Indirect cost estimates were obtained from information on employment status and hospital admissions, valued by age and sex specific wages. Two-part models (probit followed by generalized linear model) were used to estimate direct and indirect costs, adjusting for age, gender, and functional disability. The Charlson Comorbidity Index (CCI) score was calculated using patient ICD-10 diagnoses from hospital records. The number of comorbidities was categorized into “RA alone”, “single comorbidity” and “multimorbidity (>1 comorbidity)”.Results:Data were available for 1,150 patients, 65.7% were female and a mean age of 57.5±14 years. The majority of patients only had RA (54.1%), followed by a single comorbidity (23.4%) and multimorbidity (22.5%). Annual total costs were significantly higher for patients with multimorbidity (£6,669 95% CI £4,871-£8,466; OR 11.3 95% CI 8.14-15.87) and for patients with a single comorbidity (£2,075 95% CI £1,559-£2,591; OR 3.52 95% CI 2.61-4.79), when compared with RA alone (£590). The excess costs were mainly driven by direct costs (£6,281 versus £1,875 versus £556). Although the difference in indirect costs between patients with multimorbidity and a single comorbidity were not statistically significant (£1,218 versus £914, p=0.11), patients with multimorbidity were associated with significantly higher costs than those with RA only (£594, p<0.01).Conclusion:The presence of comorbidity contributes significant excess to both direct and indirect costs among RA patients. In particular, patients with multimorbidity incurred substantially higher direct costs than those with a single comorbidity or RA only.Acknowledgements:The study analysed the data from the Scottish Early Rheumatoid Arthritis (SERA) study with a linkage to routinely recorded health data from Information Service Division, National Service Scotland. We would like to thank all the patients, clinical and nursing colleagues who have contributed their time and support to the study, the SERA steering committee for the approval, and Allen Tervit from the Robertson Centre for Biostatistics, University of Glasgow for the timely technical supports.Disclosure of Interests:Ping-Hsuan Hsieh: None declared, Claudia Geue: None declared, Olivia Wu Consultant of: OW has received consultancy fees from Bayer, Lupin and Takeda outside the submitted work., Emma McIntosh: None declared

scholarly journals Product Line Diversification and Its Impact on Firm Performance

2021 ◽  
Vol 5 (3) ◽  
pp. 43-58
Author(s):  
Zia ur Rehman ◽  
Asad Khan ◽  
Rafique Ahmed Khuhro ◽  
Abdul Ghafoor Khan
Keyword(s):  
Firm Performance ◽  
Financial Performance ◽  
Product Line ◽  
Group Affiliation ◽  
Firm Profitability ◽  
Business Line ◽  
Diversified Firms ◽  
The Impact ◽  
Positive Effect ◽  
Better Than

The objective of the study is to measure product diversification’s impact on insurance firm’s financial performance in Pakistan. Analysis are carried out to examine how ownership structure, capitalization, group membership, firm size, diversification across business lines, industry concentration affects firm’s financial performance. Data from 2009-2019 is collected to measure the impact of diversification (entropy) on the risk- adjusted returns. Findings of the study reveal that business line diversification has strong positive effect on firm performance (for both ROA and ROE) which means that diversified firms perform better than non-diversified firms. For managers these findings are useful as they propose the need for diversification, capitalization, increase in size and group affiliation to enhance firm profitability.

scholarly journals Liquidity Risk Management in Banking Sector under the Shadow of Systematic Risk and Economic Dynamics in Pakistan

2019 ◽  
Vol 7 (2) ◽  
pp. 167-183
Author(s):  
Hafiz Waqas Kamran ◽  
Dr. Abdelnaser Omran ◽  
Dr. Shamsul Bahrain bin Mohamed Arshad
Keyword(s):  
Banking Sector ◽  
Systematic Risk ◽  
Key Factors ◽  
Economic Dynamics ◽  
Cross Sectional ◽  
Data Set ◽  
Financial Firms ◽  
Development Indicator ◽  
World Development Indicator ◽  
The Impact

The aim of this present study is to investigate the impact of systematic risk and economic dynamics on liquidity reserve of banking firms in Pakistan. Data for stock return and market return is collected from Data stream, while for all other factors World Development Indicator (WDI) database is selected. The findings of Pooled Regression have suggested that Liquidity Reserves for overall banking Industry of Pakistan significantly affect by Systematic Risk and Key Economic Dynamics. Panel data Models are applied to check whether there is cross sectional heterogeneity in selected financial firms or not. The study period consists of last 15 years 2001-15, due to the availability of the data set. Moreover, other economic indicators like Lending Interest Rate and Inflation can be under observation for the future studies. As per the best perception of researchers, this is the first study in this context, addressing the Liquidity Management and selected key factors.

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