Corporate governance, shareholder rights and firm diversification: An empirical analysis

Pornsit Jiraporn, Young Sang Kim, Wallace N. Davidson, Manohar Singh

Research output: Contribution to journalArticle

71 Scopus citations

Abstract

Grounded in agency theory, this study investigates how the strength of shareholder rights influences the extent of firm diversification and the excess value attributable to diversification. The empirical evidence reveals that the strength of shareholder rights is inversely related to the probability to diversify. Furthermore, firms where shareholder rights are more suppressed by restrictive corporate governance suffer a deeper diversification discount. Specifically, we document a 1.1-1.4% decline in firm value for each additional governance provision imposed on shareholders. An explicit distinction is made between global and industrial diversification. Our results support agency theory as an explanation for the value reduction in diversified firms. The evidence in favor of agency theory appears to be more pronounced for industrial diversification than for global diversification.

Original languageEnglish (US)
Pages (from-to)947-963
Number of pages17
JournalJournal of Banking and Finance
Volume30
Issue number3
DOIs
StatePublished - Mar 1 2006

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Corporate governance, shareholder rights and firm diversification: An empirical analysis'. Together they form a unique fingerprint.

  • Cite this