Ownership Effects on Unrelated Diversification: An Institutions' Perspective

Nikolaos Kavadis*, Xavier Castañer

*Corresponding author af dette arbejde

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

Abstract

Purpose - To show that differences in the extent to which firms engage in unrelated diversification can be attributed to differences in ownership structure.
Methodology/approach - We draw on longitudinal data and use a panel analysis specification to test our hypotheses.
Findings - We find that unrelated diversification destroys value; pressure-sensitive Anglo-American owners in a firm's equity reduce unrelated diversification, whereas pressure-resistant domestic owners increase unrelated diversification; the greater the firm's free cash flow, the greater the negative effect of pressure-sensitive Anglo-American owners on unrelated diversification.
Research limitations/implications - We contribute to corporate governance and strategy research by bringing in owners' institutional origin as a shaper of owner preferences in particular with regards to unrelated diversification. Future research may expand our investigation to more than one home institutional context, and theorize on institutional origin effects beyond the dichotomy between Anglo-American and non-Anglo- American (not oriented toward shareholder value maximization) owners.
Practical implications - Policy makers, financial analysts, owners, and managers may want to reflect about the implications of ownership structure, as well as promoting or joining corporations with particular ownership configurations.Social implications - A shareholder value-destroying strategy, such as unrelated diversification has adverse consequences for society at large, in terms of opportunity costs, that is, resources could be allocated to valuecreating activities instead. Promoting an ownership configuration that creates value should contribute to social welfare.
Originality/value - Owners may not be exclusively driven by shareholder value maximization, but can be influenced by normative beliefs (biases) stemming from the institutional context they originate from.
OriginalsprogEngelsk
BogserieAdvances in Strategic Management
Vol/bind31
Sider (fra-til)253-288
Antal sider36
ISSN0742-3322
DOI
StatusUdgivet - 2014
Udgivet eksterntJa

Emneord

  • Corporate governance
  • Corporate strategy
  • Institutions
  • Ownership structure
  • Unrelated diversification
  • Value creation

Citationsformater