Agency Conflicts, Corporate Governance, and Corporate Diversification - Evidence from Switzerland

57 Pages Posted: 14 Feb 2005

See all articles by Stefan Beiner

Stefan Beiner

University of Basel; University of Oxford - Said Business School

Markus Schmid

University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - School of Finance

Date Written: February 10, 2005

Abstract

This paper is concerned with the causes and consequences of industrial diversification in a cross-section of 159 Swiss firms and contributes to the existing literature in two important ways: First, it investigates the causes of corporate diversification by taking into account the overall structure of firm-level corporate governance including a broad survey-based corporate governance index. Second, by employing a simultaneous equations framework, we are able to provide some important insights on the interrelation between corporate diversification, corporate governance, and firm value. Consistent with earlier U.S. evidence, we find a diversification discount in the range of 14 to 24 percent. Moreover, our results indicate that outside blockholdings and the survey-based corporate governance index are effective deterrents to corporate diversification strategies while managerial shareholdings have neither an effect on the level nor on the value of diversification.

Keywords: Corporate diversification, corporate governance, ownership structure, firm valuation, endogeneity

JEL Classification: G32, G34

Suggested Citation

Beiner, Stefan and Schmid, Markus, Agency Conflicts, Corporate Governance, and Corporate Diversification - Evidence from Switzerland (February 10, 2005). Available at SSRN: https://ssrn.com/abstract=666264 or http://dx.doi.org/10.2139/ssrn.666264

Stefan Beiner

University of Basel ( email )

Holbeinstrasse 12
Basel, CH-4051
Switzerland

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Markus Schmid (Contact Author)

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstrasse 52
St. Gallen, 9000
Switzerland

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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