Corporate diversification and firm value: evidence from emerging markets

Abstract

Purpose – The purpose of this paper is to investigate the impact of corporate diversification on firm value in a sample of nine emerging markets including Brazil, Chile, Indonesia, Malaysia, Philippines, Poland, South Africa, Thailand, and Turkey. For the purpose of this study, a company is classified as diversified when it is operating in two or more lines of business defined by the two-digit SIC codes. Design/methodology/approach – Employing panel data from 1,568 companies for the period 2005-2010, this paper estimates both a fixed effects model and a dynamic generalized method of moments model. Data are collected both at company level and segment level within each firm. Findings – Overall, analysis results suggest that, for the period from 2005 to 2010, diversified firms in emerging markets are valued more compared to single-segment firms operating in similar industries, providing support for diversification premium. Originality/value – The effect of diversification on company value in emerging markets is an important managerial and public policy concern. Although the literature on developed country diversified firms is rich, only a few studies have examined diversification-value relationship in the context of developing countries. Furthermore, most previous research on the value effects of corporate diversification in emerging markets has taken the form of case studies within countries and concentrated on the 1990s. This paper tries to fill these gaps by using a larger sample and more recent data and methodology.

Leverage, Asymmetric Information, Firm Value, and Cash Holdings in Indonesia

“…High levels of debt can also increase the risk of the firms, which can lower the value of the firms. The results of this study were also inconsistent with the study Luo & Hachiya (2014) and Selçuk (2015) which supported the Signaling Theory. Besides, Meythi(2013) shows that leverage is the best proxy in assessing a company, because it can measure the ability of the firm's assets in repaying the debt it has.…”

“…Therefore, the increased level of firm's debt can reduce the firm value. It related with research result of (Osazuwa & Che-Ahmad, 2016) The results of the reverse research actually states that, when the company has a high debt level, it can give a positive signal to investors (Luo & Hachiya, 2014;Naseer & Naseem, 2015;Selçuk, 2015). This is because, according to investors, the firm believes it can meet its obligations in the future, which of course shows that the firm is confident of its future performance.…”

“…Debt Ratio) DR = Debt Total Total Aktia (Naseer & Naseem, 2015;Selçuk, 2015) Asymmetry Information (X2): It is an unequal information shared by managers and shareholders. …”

Can the Famous University Experience of Top Managers Improve Corporate Performance? Evidence from China

“…According to the analysis above, the proportion of executives with famous university experience in TMT will have an impact on the corporate performance, which is mediated by overconfidence. Corporate performance is deeply influenced by business complexity [76,77], the relationship between famous university experience of TMT and corporate performance may vary under different business complexity. Therefore, it is necessary to introduce corporate business complexity as a moderating variable, to study whether the direction and intensity of this impact will differ under distinct business complexity.…”

Has aggressive investing strategy performed? An insight from Malaysia listed companies

“…Whether or not investing activities would facilitate better performance is rarely discussed or empirically tested. Research in strategic management, or managerial accounting, is more concerned with the performance of specific investment activities such as diversification (Selçuk, 2015), product competition (Fosu, 2013;Wang, 2016), financial market instrument (Brav et al, 2018), equity investment (Edmans, Fang, & Lewellen, 2017), or outbound direct investment (Hsu, Wang, & Clegg, 2015). Scant research comprehensively examines the investing activism by gauging both financial investment and real investment; a gap that this research aims to tackle…”