How Much of the Diversification Discount Can Be Explained by Poor Corporate Governance
By Daniel Hoechle, Markus Schmid, I. Walter, David Yermack. 2012
325 citations recorded by the source corpus.
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.
Subfields: Accounting, Economics and Econometrics, Sociology and Political Science
View Paper: https://www.semanticscholar.org/paper/ed06e1cd25089b03601335657750767727efd77e
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Citations in the corpus
- Does the Diversification–Firm Performance Relationship Change Over Time? A Meta‐Analytical Review (2018, unknown): “As a result, stock markets tend to put a diversification discount on conglomerate stocks (Ammann et al., 2012; Berger and Ofek, 1995; Comment and Jarrell, 1995; Denis et al., 2002; Hoechle et al., 2012; Lang and Stulz, 2010; Servaes, 1996).”
- Board gender diversity and dividend policy in Australian listed firms: the effect of ownership concentration (2019, unknown): “Pucheta-Martinez and Bel-Oms (2016) argue for a negative relationship between ownership concentration and dividend payments.”
- The Impact of Managerial Ability on Crisis-Period Corporate Investment (2017, unknown): “compensation, to maintain superior governance structures (Hoechle et al., 2012).”
- Does Boardroom Gender Diversity Matter? Evidence from a Transitional Economy (2015, methodology): “The reason for this is that the two-step System GMM, by construction, is superior to other estimators (e.g., OLS with fixed-effects or Standard Difference GMM) in dealing with the highly persistent characteristic of the explanatory variables (Antoniou et al., 2008; Hoechle et al., 2012).”
- Corporate governance and the profitability of insider trading (2016, unknown): “Old director Percentage of directors who are older 6 - RiskMetrics Armstrong et al. (2012), and Hoechle et al. (2012). percentage than 72.”
- Firm Value Creation through Major Channel Expansions: Evidence from an Event Study in the United States, Germany, and China (2014, result): “This finding mirrors previous findings that firms with greater product diversification might face agency problems, leading to higher administrative costs and undermining firm efficiency (Hoechle et al. 2012).”
- Corporate hedging and the cost of debt (2014, methodology): “Hoechle et al. (2012) also use the dynamic panel GMM model in addition to the Heckman selection models in their examination of how diversification discount can be explained by poor corporate governance.”
- Ownership concentration and corporate performance from a dynamic perspective: Does national governance quality matter? (2015, background): “In addition, the BB system GMM estimator, by construction, mitigates the influence of the high persistence of corporate governance variables, which helps to improve the power of estimations (Antoniou et al., 2008; Hoechle et al., 2012).”