Three Essays on Diversification and Corporate Policies

Authors

Catalina Hurwitz, Florida International UniversityFollow

Document Type

Dissertation

Degree

Doctor of Philosophy (PhD)

Major/Program

Business Administration

First Advisor's Name

Wen-Hsiu (Julia) Chou

First Advisor's Committee Title

Committee Chair

Second Advisor's Name

Arun J. Prakash

Second Advisor's Committee Title

Committee Co-Chair

Third Advisor's Name

Chun-Hao Chang

Third Advisor's Committee Title

Committee Member

Fourth Advisor's Name

Gauri L. Ghai

Fourth Advisor's Committee Title

Committee Member

Keywords

Diversification, Globalization, Corporate Policies, IPO, SOX

Date of Defense

6-16-2016

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.

Identifier

FIDC000702

Recommended Citation

Hurwitz, Catalina, "Three Essays on Diversification and Corporate Policies" (2016). FIU Electronic Theses and Dissertations. 2623.
https://digitalcommons.fiu.edu/etd/2623