How Much of the Diversification Discount Can be Explained by Poor Corporate Governance?

Item Type Journal paper
Abstract

We investigate whether the diversification discount occurs partly as an artifact of poor corporate governance. In panel data models, we find that the discount narrows by 16% to 21% when we add governance variables as regression controls. We also estimate Heckman selection models that account for the endogeneity of diversification and dynamic panel generalized method of moments models that account for the endogeneity of both diversification and governance. We find that the diversification discount persists even with these controls for endogeneity. However, in selection models the discount disappears entirely when we introduce governance variables in the second stage, and in dynamic panel GMM models the discount narrows by 37% when we include governance variables.

Authors Schmid, Markus; Hoechle, Daniel; Walter, Ingo & Yermack, David
Journal or Publication Title Journal of Financial Economics
Language English
Keywords Organizational structure, Diversification, Firm valuation, Corporate governance
Subjects business studies
Institute/School s/bf - Swiss Institute of Banking and Finance
HSG Classification contribution to scientific community
Refereed Yes
Date January 2012
Publisher Elsivier
Place of Publication Amsterdam
Volume 103
Number 1
Page Range 41-60
Number of Pages 20
ISSN 0304-405X
ISSN-Digital 1879-2774
Publisher DOI 10.1016/j.jfineco.2011.03.025
Depositing User Prof. Dr. Markus Schmid
Date Deposited 07 Mar 2012 10:34
Last Modified 23 Aug 2016 11:12
URI: https://www.alexandria.unisg.ch/publications/210168

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Schmid, Markus; Hoechle, Daniel; Walter, Ingo & Yermack, David (2012) How Much of the Diversification Discount Can be Explained by Poor Corporate Governance? Journal of Financial Economics, 103 (1). 41-60. ISSN 0304-405X

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https://www.alexandria.unisg.ch/id/eprint/210168
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