Agency Problems, Equity Ownership, And Corporate Diversification

Agency Problems, Equity Ownership, and Corporate Diversification We provide evidence on the agency cost explanation for corporate diversification by documenting three principal findings. First, there is a strong negative relation between the extent of diversification and managerial equity ownership after controlling for other factors related to diversification. Second, there is a weak negative relation between the value loss from diversification and managerial ownership. Third, decreases in diversification are associated with external corporate control threats, financial distress, and management turnover. These findings are consistent with the hypotheses 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. 3 Agency Problems, Equity Ownership, and Corporate Diversification Several recent studies examine the valuation consequences ..