Corporate governance, shareholder rights and firm diversification: An empirical analysis
Does diversification improve the firm through operating efficiency, internal capital markets, capacity to take debt and reduction in taxes? Does agency theory give some insight into the diversification premium or discount?
There is evidence here that when shareholders' rights are weak, there is more likely to be industrial diversification. Managers take advantage of shareholder weakness to diversify unwisely and to reduce the value of the firm. The evidence on international diversification is more ambiguous. There is no relationship between shareholder rights and the propensity to diversify internationally.
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