Corporate diversification and innovation: Managerial myopia or inefficient internal capital markets?

Which is more innovative: the decentralized, diversified firm, or the centralized, more narrowly focused firm? The economics and finance literatures argue that diversified firms have innovation advantages as their operating units have access to an internal capital market. In contrast, the strategy and entrepreneurship literatures argue that managers of these firms suffer from “managerial myopia,” discouraging them from investing in projects with long-term, uncertain payoffs. We take a fresh look at the relationship between innovation and diversification using a comprehensive sample of diversified and nondiversified firms and a novel approach that teases out the mechanisms influencing the relationship between diversification and innovation. Consistent with conceptual and empirical work in strategy, we find a robust negative correlation between diversification and R&D intensity, suggesting that diversification reduces innovation by discouraging investment. However, our analysis suggests that internal capital market inefficiencies, rather than managerial myopia, is responsible for this observed negative relationship.     

中国系族集团与一般企业多元化差异的实证研究

在尝试性地对系族集团的概念进行界定之后,对中国系族集团多元化均值、中位数和战略类型进行了实证分析。然后,从资本市场融资、公司治理失效、多元化战略面临的委托代理问题以及系族集团多元化"假象"等角度,深入探讨了系族集团多元化和一般企业多元化存在明显差异的深层原因。     

上市公司分散化战略分析

本文调查了747家上市公司的成长性及其产业特征,考察了分散化的价值效应,探索了分散化战略对企业价值的影响方向。研究结果显示,分散化企业较之非分散化企业具有更高的成长性,即使在控制了企业规模、资产结构、财务杠杆以及股权结构等因素的影响之后,分散化对企业价值仍然存在显著的正向解释力。通过分析企业成长性的产业效应,进一步验证了分散化的溢价效应。同时还预测了分散化组织优势源于债务融资的税盾收益以及有效的内部资本市场所产生的财务协同效应。研究表明,在不发达的金融体系中分散化战略具有价值创造功能。     

Organizational capital and the choice between specialization and diversification

This paper specifies a model in which the preservation of organizational capital is the principal factor motivating corporate diversification decisions. Alternative hypotheses of the determinants of diversification are then subjected to empirical test with data for 96 US industrial firms in the 1967–71 period. Consistent with the model, variables associated with unfavorable expectations on the marginal returns to investment in existing activities proved dominant in explaining ‘desired’ increases in diversification. Alternative explanations, namely, the role of managerial attributes, of absolute advantages of some firms, and of opportunities created by research and development, had more modest explanatory power.     

Restriction of Farm Ownership as Rent-seeking Behavior: Family Farmers Have It Their Way

A bstract . Restriction of foreign ownership of U.S. farmland has an obvious cost of foregone capital gains to farmers Yet their push to achieve state regulation of foreign investment in agricultural land has a sound economic basis. If required acreage expansion and high prices for land combine to force small, family farmers out of business, the value of their accumulated human capital falls precipitously, since it is soil specific With a large foreign demand for farmland which induces a tremendous rate of land price inflation , capital gains on their land swamp potential human capital losses. However, marginal participation in the U.S. farmland market by foreigners creates capital gains on land which are insufficient to compensate farmers for lost human capital, and creates a rationale for regulation The empirical results demonstrate that the pattern of legislative restrictions against foreign ownership of farmland is a function of the relative political power wielded by family farmers.     

Agency costs and dividend payments: The case of bank holding companies

This paper examines the hypothesis that agency costs are a primary factor motivating dividend payments. Norohna et al. (1996) present evidence that the agency cost rationale is context specific and that dividends will not be driven by agency costs when other mechanisms exist for controlling agency problems. We argue that regulation of bank holding companies involves a context specific case where agency costs may be less relevant. Using an empirical methodology similar to Born and Rimbey’s (1993), we find that the abnormal returns associated with dividend announcements by bank holding companies are not related to their external financing activities. The monitoring activities of the capital markets are not a rationale for dividend payments in the presence of bank regulation. Our results are robust to an alternative explanation involving the signaling role of new equity financings.     

When is it efficient to treat juvenile offenders more leniently than adult offenders?

This paper provides a rationale for two characteristics of juvenile justice systems. First, juvenile justice systems tend to be more lenient in terms of both incarceration rates and time incarcerated. Second, higher expenditures are made to incarcerate a juvenile offender than an adult prisoner. It does this by examining the effect juvenile incarceration has on human capital acquisition and in turn, later incentives to commit crime as adults. In the process, it also offers an explanation of the empirical finding that individuals arrested as juveniles are more likely to be arrested as adults.     

Bimodality in diversification: An efficiency and effectiveness rationale

Various researchers have observed that the frequency distribution of firm diversification is bimodal. The two modes are created by a majority of firms employing either very little or substantial amounts of diversification. Only a minority of firms opt for medium amounts of diversification. From theoretical discussion of the forces of efficiency and effectiveness in diversification, this work provides a rationale for the bimodality phenomenon. In turn, research implications arise regarding optimum degrees of diversification, what the impact of optimization is upon firm performance, and why the measurement of both type and degree of diversification is important.     

Disorder in the Risk Order

Abstract

This paper studies the difference in global equity portfolios allocated by the criterion of minimizing the risk by using two different risk measures, the standard deviation and the conditional value at risk. An empirical analysis is performed on a comprehensive stock exchange database. The main hypothesis of the present work is that the choice of risk measure has crucial importance in portfolio optimisation, especially in those situations when the stock markets are extremely volatile and the return distributions are non-normal. The rationale behind establishing minimum-risk portfolios is to keep track of the highest possible risk reduction benefits from international diversification.     

城市住宅特征价格模型的理论分析

本文主要从函数形式的建立、模型的估计、模型的检验以及模型存在的问题及处理措施四个方面对住宅特征价格模型进行理论分析和总结,为实证研究中模型函数形式的选择、模型的估计和检验方法以及如何避免和处理模型中存在的问题提供了理论依据。     

Is there a diversification “cost” of Shari’ah compliance? Empirical evidence from Malaysian equities

Islamic equity portfolios work with a smaller investment universe given the filtering of non-Shari’ah compliant stocks. It has been theoretically argued that this culminates in suboptimal portfolio diversification, which in turn adversely affects risk-adjusted returns. We offer empirical evidence that such a conceived portfolio diversification “penalty” is far from a foregone conclusion, at least empirically. Our results tend to indicate that Islamic portfolios are not invariably handicapped in terms of portfolio diversification. We also explored dimensions that may account for differences in the relative investment performance between Islamic and conventional portfolios, such as portfolio constraints, short selling and market conditions. We believe this paper is among the first to apply substantial empirical analysis specifically with respect to the portfolio diversification perspective on Islamic equity investments.     

基于多元化竞争战略探讨我国中小企业的资本结构问题

本文创新性地从竞争战略的视角来研究中小企业资本结构问题,建立了中小企业多元化经营回归模型,设置了多元化变量、财务杠杆变量、国家补贴变量和收益性变量,并根据深圳证券交易创业板所提供的实际数据,运用相关性分析的方法进行了实证研究,结果表明:中小企业的多元化经营与资产负债率指标之间并不显著相关;财务杠杆系数对企业资产负债率呈显著正相关;国家财政补贴扶持对中小企业的效果显著。     

Firm Complexity and Capital Structure: Evidence from Italian Diversified Firms

This paper examines the links between product diversification, international diversification and capital structure for a panel of medium and large Italian firms. The results indicate that the interaction between these two dimensions of diversification strategy has a negative and significant impact on leverage. Furthermore, debt maturity analysis reveals that firms pursuing a simultaneous dual diversification strategy have, in particular, lower long‐term debt ratios. Our findings support the hypothesis that the complexity that comes from diversification reduces debt levels. Copyright © 2014 John Wiley & Sons, Ltd.     

我国上市公司的多元化战略与公司绩效

本文以2004年深沪两市的696家非金融公司作为样本,通过建立有效的多元化经营指标,考察了中国上市公司多元化战略与其绩效(CROA)的关系。实证研究表明,多元化有一定的正面效应,即能够降低公司经营风险,但是从整体上来看,多元化的成本仍然大于收益,导致多元化程度与公司绩效负相关。这一实证结果与多元化给企业带来巨大成本的理论一致。     

Causes and effects of multimarket activity from theory to empirical analysis

In this paper some of the results emerged in the empirical literature on diversification are put into perspective against the background of a simple integrative model of multiproduct firms. By letting diversification strategies depend on the simultaneous play of four factors (demand relationships and technological links between goods, collusion within a market and across markets), the latter provides an illustrative framework which is useful to discuss how effectively the issue of ambiguous findings has been tackled in applied works. In some cases scholars have devoted substantial effort in order to build tests which can successfully discriminate among the different views on the causes and effects of diversification, while in other circumstances empirical investigations have been conducted with much less care. Other then criticising some of the methods used in the past, the paper provides a number of suggestions that can help guiding future empirical work on corporate diversification. Copyright © 2004 John Wiley & Sons, Ltd.     

Multidivisional structure and capital structure: The contingency of diversification strategy

This study examines the relationship between the implementation of the multidivisional (M-form) organizational structure, capital structure and diversification strategy. Findings indicate that implementation of the M-form structure from a hierarchical (U-form) structure is associated with a general increase in the long-term debt-to-equity ratio for all firms, a result that supports a free-cash-flow argument for the use of debt in restructuring to reduce the opportunism of management. Further, as implied by arguments from transaction cost economics, the debt-to-equity ration differs for different types of diversification strategy.     

高管控制权、资本扩张与企业财务风险——来自国有上市公司的经验证据

本文基于委托代理理论,以2004～2009年的国有上市公司为研究样本,对高管控制权与企业资本扩张行为的关系及其对企业财务风险的影响进行了探讨。实证结果发现:高管控制权与企业的投资扩张及多元化扩张行为存在显著的正相关关系,而且当企业拥有充裕的现金流时,其正相关程度更大。基于联立方程模型的研究结果表明,控制权较强的高管所实施的多元化扩张战略会加大企业陷入财务困境的可能性。     

Winner Take All: Competition, Strategy, and the Structure of Returns in the Internet Economy

In this paper, we develop an economic rationale for the following stylized fact: Web-based firms spend profligately on advertising and marketing and usually lose money. Our rationale is based on the winner-take-all structure of high fixed cost, low marginal cost, markets for information goods. This market structure ensures that market participation and investment policy are highly stochastic. Moreover, if a firm chooses to participate in a Web market, it is optimal to act very aggressively through saturation advertising. Although increases in advertising costs reduce the probability of entry, once the decision to enter is made, firm strategies are insensitive to advertising price. Consistent with empirical studies of the profitability of internet firms ( Hand, 2001 ), our model predicts returns that are highly positively skewed, that is, even the firms that survive the competition for market position have a small chance of huge gains combined with a large probability of very modest returns. In dynamic competition, firms weakened by early rounds are less likely to challenge in subsequent rounds. However, when a challenge is attempted, it is always aggressive. In addition, because large expenditures in the first period produce valuable strategic real options in later periods, which are treated as expenses using traditional accounting methodology, the financial valuation of Internet firms may actually be negatively related to performance when using standard accounting measures of profitability that fail to capitalize these strategic real options.     

Diversification discount,information rents,and internal capital markets

While many existing studies report that corporate diversification destroys shareholder value, several recent studies challenge these findings. Schoar [Schoar, A. (2002). Effects of corporate diversification on productivity. The Journal of Finance, 57, 2379?2403] finds that plants in conglomerates are more productive than those in comparable single-segment firms, although conglomerates are traded at discounts. Villalonga [Villalonga, B. (2004a). Diversification discount or premium? New evidence from the business information tracking services. The Journal of Finance, 59, 479–506; Villalonga, B. (2004b). Does diversification cause the “diversification discount”. Financial Management, 33, 5?27] employs a more comprehensive database and statistical techniques than those used in the prior studies, and shows that there is a diversification premium, rather than discount. This paper develops a model that highlights the costs and benefits of corporate diversification. The diversified firm trades off the benefits of more efficient resource allocation through its internal capital market against the costs of information rents to division managers, which are necessary for effective workings of the internal capital market. We provide an argument supporting Schoar's findings, and identify conditions under which there can be a diversification discount or a premium.