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Fuente Herrero, Gabriel de la Velasco González, María Del Pilar 2024-01-30T19:00:48Z 2024-01-30T19:00:48Z 2020 Journal of Banking & Finance, 2020, vol. 111, p. 105728. 0378-4266 https://uvadoc.uva.es/handle/10324/65392 10.1016/j.jbankfin.2019.105728 Journal of Banking & Finance Producción Científica This study investigates the role of debt as an internal governance mechanism that can be employed by companies to curb agency conflicts and discourage managers from value-destroying diversification. Using a panel of U.S. firms, we find that leverage positively moderates the effect of diversification on a firm’s value. We confirm that such an effect stems from the monitoring role of debt, which fosters efficiency in investments across segments and discourages cross-subsidization. Our investigation goes a step further by delving into the disciplinary role of debt and rationalizing certain scenarios that determine whether the effect of debt on the diversification-value relationship is stronger or weaker. We find such a moderating effect proves more beneficial for unrelated diversified companies and for firms with lower investment opportunities. However, the benefits of debt weaken in the presence of an alternative monitoring device (concentrated ownership), and when debt allocation becomes discretionary in highly diversified compa- nies. Financial support was received from the Regional Government of Castilla y León (ref. VA260U14) and the Spanish Ministry of Science and Innovation (ref ECO2014- 56102-P and ECO2017-84864-P ). application/pdf eng Elsevier Elsevier info:eu-repo/semantics/openAccess http://creativecommons.org/licenses/by-nc-nd/4.0/ The authors (Gabriel de la Fuente and Pilar Velasco) Attribution-NonCommercial-NoDerivatives 4.0 Internacional Empresas-Finanzas corporate diversification capital structure agency theory overinvestment firm value Capital structure and corporate diversification: Is debt a panacea for the diversification discount? info:eu-repo/semantics/article info:eu-repo/semantics/acceptedVersion https://www.sciencedirect.com/science/article/abs/pii/S0378426619303012 SI