Three essays on diversification and corporate policies
Abstract
In the first essay using a sample of 3437 U.S. companies over the period 1992-2014, I demonstrate that international business activities of newly listed firms influence their corporate policies. Specifically, firms earning foreign pre-tax income at an early phase of their growth and development have higher investment and a higher propensity to acquire. I show that cash holdings are lower for firms involved in foreign activities, supportive of Duchin’s (2010) coinsurance theory. Further, CEOs of globally diversified firms have less pay-for-performance sensitivity than those of purely domestic firms. The second essay examines the impact of the Sarbanes-Oxley Act (SOX, 2002) on excess valuation calculated with the “chop shop” approach, which is typically used to measure the diversification discount. The results indicate a significant drop in excess valuation after SOX for both pure-play and multi-segment companies. Additional investigation of the calculation methodology and a difference-in-differences model show no distinction in this impact between un-accelerated and accelerated companies. There is no evidence to support that the Sarbanes-Oxley Act leads firms to diversify or focus. I run several robustness tests by including 2003 observations, creating a 2000-2006 subsample, excluding geographic segments. Finally, when in a firm's life would it fit for it to become involved in global strategies? What are the important influences on the decisions of young and mature firms to go international? I answer these questions in the third essay by examining the determinants that affect the choices of born-globals (BGs) and born-again globals (BaGs) to expand worldwide. My study is based on pre-existent theories of diversification, and I place specific emphasis on the conceivable role of peer influence and the motivation or desire for growth. I further study the entrenchment, the idiosyncratic risk, and the innovation caliber hypothesis. My results document that innovation efficiency strongly enhances BG’s propensity to global diversify. On the other hand, peer pressure, CEO ownership and idiosyncratic risk level significantly influence BGs not to globalize. In contrast, BaGs are positively influenced by their industry peers, showing how competition works in the financial markets for youthful versus mature companies.
Subject Area
Business administration
Recommended Citation
Hurwitz, Catalina Ioana, "Three essays on diversification and corporate policies" (2016). ProQuest ETD Collection for FIU. AAI10289198.
https://digitalcommons.fiu.edu/dissertations/AAI10289198