Corporate governance and firm diversification

Ronald C. Anderson, Thomas Bates, John M. Bizjak, Michael L. Lemmon

Research output: Contribution to journalArticle

98 Citations (Scopus)

Abstract

We empirically investigate whether corporate governance structure is different between focused and diversified firms, and whether any differences in corporate governance are associated with the value loss from diversification. We find that, relative to focused firms, CEOs in diversified firms have lower stock ownership and lower pay-for-performance sensitivities. Diversified companies, however, have more outside directors, no difference in independent block-holdings, and sensitivity of CEO turnover to performance similar to that in single-segment firms. Moreover, we find no compelling evidence that internal governance failures are associated with the decision to diversify, or that governance characteristics explain the value loss from diversification. Our findings suggest that diversified firms use alternative governance mechanisms as substitutes for low pay-for-performance sensitivities and CEO ownership. We conclude that agency costs do not provide a complete explanation for the magnitude and persistence of the diversification discount.

Original languageEnglish (US)
Pages (from-to)5-22
Number of pages18
JournalFinancial Management
Volume29
Issue number1
StatePublished - Mar 2000
Externally publishedYes

Fingerprint

Firm diversification
Diversified firms
Corporate governance
Low pay
Diversification
Pay-for-performance
CEO turnover
CEO ownership
Ownership
Governance structure
Persistence
Substitute
Diversification discount
Agency costs
Chief executive officer
Governance mechanisms
Governance
Outside directors
Internal governance

ASJC Scopus subject areas

  • Accounting
  • Economics and Econometrics
  • Finance

Cite this

Anderson, R. C., Bates, T., Bizjak, J. M., & Lemmon, M. L. (2000). Corporate governance and firm diversification. Financial Management, 29(1), 5-22.

Corporate governance and firm diversification. / Anderson, Ronald C.; Bates, Thomas; Bizjak, John M.; Lemmon, Michael L.

In: Financial Management, Vol. 29, No. 1, 03.2000, p. 5-22.

Research output: Contribution to journalArticle

Anderson, RC, Bates, T, Bizjak, JM & Lemmon, ML 2000, 'Corporate governance and firm diversification', Financial Management, vol. 29, no. 1, pp. 5-22.
Anderson RC, Bates T, Bizjak JM, Lemmon ML. Corporate governance and firm diversification. Financial Management. 2000 Mar;29(1):5-22.
Anderson, Ronald C. ; Bates, Thomas ; Bizjak, John M. ; Lemmon, Michael L. / Corporate governance and firm diversification. In: Financial Management. 2000 ; Vol. 29, No. 1. pp. 5-22.
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