Browsing by Subject "Diversification in industry"
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Item Towards a reconciliation of the diversification-performance paradox: an examination of strategies across the spectrum of diversified corporation(Texas Tech University, 2001-05) Stetz, Philip EdwardMost empirical research examining the value of diversification explores the linkage between economic performance and the level of diversification at the corporate level of analysis. However, without comparing the returns to diversification to business units operating within a corporation's governance system to the returns of stand-alone businesses or to other business units embedded in other diversified corporations, the analysis can not directly address a fundamental question underpinning the research on diversification, "Do corporations make businesses better off?" Furthermore, few studies, investigating the relationship between diversification and performance, have controlled for variables that have demonstrated effects on business unit performance. To address these criticisms, this study focuses on the business unit level of analysis and employs a general linear mixed model to investigate the linkage between the level of diversification on business unit performance (fixed effects) while controlling for industry, corporate, and business unit factors (random effects). Results show that the relationship between business unit performance and the level of corporate diversification, m which the business unit is embedded, is an inverted U-shaped relationship. Additionally, business unit performance, for most levels of diversification, was significantly different from that of stand-alone firms, suggesting that diversification strategies may add value to businesses over that which a business may achieve without corporate parentage. Business units, within low to moderately diversified corporations, earned a 60% greater return, on average, than that of single stand-alone firms. However, differences in performance of business units embedded in diversified corporations, from dominate through highly diversified corporations, were non-significant.Item Two essays on the corporate governance for real estate investment trusts (REITs)(2006) Sun, Libo; Titman, Sheridan; Hartzell, JayEssay one investigates the relation between firms’ investment choices and various governance mechanisms, using a sample of Real Estate Investment Trusts (REITs). We find evidence that the responsiveness of REITs’ investment expenditures to their opportunities depends on their corporate governance structures. Within the set of governance mechanisms that we examine, we find particularly strong links between investment behavior and ownership. Specifically, we find that the investment choices of REITs are more closely tied to Tobin’s q if they have greater institutional ownership, or lower director and officer stock ownership. These results are consistent with institutional owners monitoring the firm’s investment policies, and with high insider ownership allowing managers to follow their own investment agendas. Essay two reexamines the diversification discount using a sample of REITs from 1995 to 2003. We investigate the wealth effect of diversification across property type and regional locations. We find that regional diversification has a significant negative impact on firm value. Examining the determinants of corporate diversification, we discover that past growth opportunities are negatively related to the probability of diversifying choices. Moreover, this effect is mitigated in firms with high institutional ownership. This is consistent with the agency cost hypothesis that managers engage in buying-growth diversification and institutions could reduce the probability of such behavior. The influence of institutional investors has a significant value impact as well: firms with high institutional ownership are associated with lower regional diversification discount. Within two institutional sub-groups -- potentially active and passive monitoring institutions, it is potentially active ones that display such value impact, not the potentially passive ones. We conduct several tests to distinguish two hypotheses: that institutions play a monitoring role, or they selectively hold shares of certain firms. The results from simultaneous equation models support the monitoring story. Last, we also investigate the effect of other governance variables in firms’ diversifying choices and the diversification discount. We find that direct effect of other governance variables on diversifying decision is weak. Yet, as a group they significantly influence the regional diversification discount.