Agency Conflicts, Corporate Governance, and Corporate Diversification - Evidence from Switzerland
57 Pages Posted: 14 Feb 2005
Date Written: February 10, 2005
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: Suggested Citation