Agency Problems, Equity Ownership, and Corporate Diversification

J. OF FINANCE

Posted: 9 Dec 1996

See all articles by David J. Denis

David J. Denis

University of Pittsburgh

Diane K. Denis

University of Pittsburgh - Katz School of Business

Atulya Sarin

Santa Clara University - Department of Finance

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

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

David J. Denis

University of Pittsburgh ( email )

Katz Graduate School of Business
Pittsburgh, PA 15260
United States
412-648-1708 (Phone)

Diane K. Denis

University of Pittsburgh - Katz School of Business ( email )

368B Mervis Hall
Pittsburgh, PA 15260
United States
412-624-0296 (Phone)

Atulya Sarin (Contact Author)

Santa Clara University - Department of Finance ( email )

Leavey School of Business and Administration
Santa Clara, CA 95053
United States
408-554-4953 (Phone)
408-904-4498 (Fax)

HOME PAGE: http://business.scu.edu/asarin

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