Does Good Governance Prevent Bad Strategy? A Study of Corporate Governance, Financial Diversification, and Value Creation by French Corporations, 2000-2006

Xavier Castañer*, Nikolaos Kavadis

*Corresponding author af dette arbejde

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review


Building on and extending prior research, we propose a comprehensive framework which posits that free cash flow moderates the impact of corporate governance on financial diversification. We argue that because it increases CEO perceived risk, alignment devices increase rather than decrease financial diversification. In a sample of 59 publicly traded French corporations during 2000-2006, we show that financial diversification negatively impacts shareholder return and firm value. We obtain support for several of our hypotheses: at high levels of free cash flow, CEO variable compensation increases financial diversification, whereas chairman/CEO non-duality reduces it. In contrast, independent directors increase financial diversification at low values of free cash flow (although weakly). We also find that ownership concentration only reduces financial diversification when free cash flow is low.
TidsskriftStrategic Management Journal
Udgave nummer7
Sider (fra-til)863-876
Antal sider14
StatusUdgivet - jul. 2013
Udgivet eksterntJa


  • Corporate governance
  • Corporate strategy
  • Incentives
  • Monitoring
  • Value creation