Corporate Structure and Equity Offerings: Are There Benefits to Diversification?

51 Pages Posted: 25 Oct 1998

See all articles by Charles J. Hadlock

Charles J. Hadlock

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management

Michael D. Ryngaert

University of Florida - Department of Finance, Insurance and Real Estate

Shawn Thomas

University of Pittsburgh - Katz Graduate School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: October 1998

Abstract

In this paper we examine the effect of corporate diversification on the equity issue process. In a sample of 641 equity issues conducted over the 1983-1994 time period, we find evidence that equity issues by diversified firms are viewed less negatively by the market than are equity issues by comparable focused firms. This finding is consistent with the hypothesis that diversification helps alleviate the asymmetric information problem when raising equity, a possibility that we formally model. Our results are inconsistent with the hypothesis that valuation problems exacerbate the asymmetric information problem for diversified firms. Additionally, our results appear to be inconsistent with the hypothesis that the market views equity issues by diversified firms as a particularly strong indication that the firm will invest in poor projects.

JEL Classification: G32

Suggested Citation

Hadlock, Charles J. and Ryngaert, Michael David and Thomas, Shawn, Corporate Structure and Equity Offerings: Are There Benefits to Diversification? (October 1998). Available at SSRN: https://ssrn.com/abstract=137539 or http://dx.doi.org/10.2139/ssrn.137539

Charles J. Hadlock

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management ( email )

315 Eppley Center
East Lansing, MI 48824-1121
United States
517-353-9330 (Phone)
517-432-1080 (Fax)

Michael David Ryngaert

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-9765 (Phone)

Shawn Thomas (Contact Author)

University of Pittsburgh - Katz Graduate School of Business ( email )

246 Mervis Hall
Pittsburgh, PA 15260
United States
412-648-1648 (Phone)
412-648-1693 (Fax)

HOME PAGE: http://www.pitt.edu/~shthomas/index.htm

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