Agency Problems, Equity Ownership, and Corporate Diversification
J. OF FINANCE
Posted: 9 Dec 1996
Abstract
We provide evidence on the agency cost explanation for corporate diversification. We find that the level of diversification is negatively related to managerial equity ownership and to the equity ownership of outsideblockholders. In addition, we report decreases in diversification are associated with external corporate control threats, financial distress, and management turnover. These findings suggest that agency problems are responsible for firms maintaining value-reducing diversification strategies and that the recent trend towards increased corporate focus is attributable to market disciplinary forces.
JEL Classification: G39
Suggested Citation: Suggested Citation
Denis, David J. and Denis, Diane K. and Sarin, Atulya, Agency Problems, Equity Ownership, and Corporate Diversification. J. OF FINANCE, Available at SSRN: https://ssrn.com/abstract=7967
Feedback
Feedback to SSRN
If you need immediate assistance, call 877-SSRNHelp (877 777 6435) in the United States, or +1 212 448 2500 outside of the United States, 8:30AM to 6:00PM U.S. Eastern, Monday - Friday.