RT info:eu-repo/semantics/article
T1 Capital structure and corporate diversification: Is debt a panacea for the diversification discount?
A1 Fuente Herrero, Gabriel de la
A1 Velasco González, María Del Pilar
K1 Empresas-Finanzas
K1 corporate diversification
K1 capital structure
K1 agency theory
K1 overinvestment
K1 firm value
AB 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.
PB Elsevier
SN 0378-4266
YR 2020
FD 2020
LK https://uvadoc.uva.es/handle/10324/65392
UL https://uvadoc.uva.es/handle/10324/65392
LA eng
NO Journal of Banking & Finance, 2020, vol. 111, p. 105728.
NO Producción Científica
DS UVaDOC
RD 22-nov-2024