A trade-off in corporate diversification
Ekkayokkaya, Manapol and Paudyal, Krishna (2015) A trade-off in corporate diversification. Journal of Empirical Finance, 34. pp. 275-292. ISSN 0927-5398 (https://doi.org/10.1016/j.jempfin.2015.07.005)
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Abstract
The marginal benefits of diversification exceed the costs by a decreasing margin, and diversifying beyond the optimal level will produce a wealth loss. This trade-off predicts an inverted U-relation between the degree of diversification and wealth. We find empirical evidence in support of this trade-off proposition. Consistent with the trade-off, firms diversify cautiously and stop diversifying before the marginal benefits are offset by the costs. Our findings lend support to the arguments suggesting efficient diversification. In line with the endogeneity of diversification, the findings also indicate that the optimal level of diversification can vary across firms depending on their reasons for diversifying.
ORCID iDs
Ekkayokkaya, Manapol and Paudyal, Krishna ORCID: https://orcid.org/0000-0002-0372-304X;-
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Item type: Article ID code: 53983 Dates: DateEvent1 December 2015Published6 August 2015Published Online29 July 2015AcceptedSubjects: Social Sciences > Commerce > Accounting
Social Sciences > FinanceDepartment: Strathclyde Business School > Accounting and Finance Depositing user: Pure Administrator Date deposited: 14 Aug 2015 14:26 Last modified: 27 Sep 2024 00:52 Related URLs: URI: https://strathprints.strath.ac.uk/id/eprint/53983