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

36 Pages Posted: 21 Sep 2001 Last revised: 26 Jun 2015

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: Arpil 8, 2000

Abstract

We examine the effect of corporate diversification on the equity issue process in a sample of 641 equity issues from 1983 to 1994. We find that issues by diversified firms are viewed less negatively by the market than are issues by focused firms. This finding supports the hypothesis that diversification helps alleviate asymmetric information problems. Our results appear inconsistent with the hypothesis that reduced transparency exacerbates asymmetric information problems for diversified firms. The results also appear inconsistent with the hypothesis that the market anticipates that the funds raised from equity issues by diversified firms will be invested in particularly poor projects.

Suggested Citation

Hadlock, Charles J. and Ryngaert, Michael David and Thomas, Shawn, Corporate Structure and Equity Offerings: Are There Benefits to Diversification? (Arpil 8, 2000). Journal of Business, Vol. 74, No. 4, October 2001. Available at SSRN: https://ssrn.com/abstract=279520

Charles J. Hadlock (Contact Author)

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

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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