Examination of the Relationship Between Global Diversification and Global Capital Markets Improvement
Date Issued
2007
Date
2007
Author(s)
Chen, Chieh-Wei
DOI
en-US
Abstract
Using a sample of 62,832 firm-years between 1979 and 2005, I document a positive relationship between global diversification discount and global capital markets improvement. In other words, we find that when global capital market improves gradually over time, the extent of global diversification discount would increase. The reason we mention is that improvement of global capital market would reduce the extent of information asymmetry between borrowers and lenders and lower one firm’s external financing costs. Thus, importance of internal capital market would decline due to possibility of underinvestment problem decline as well.
Sample selection and methodology in this paper mainly follows Berger and Ofek (1995) and Denis and Denis (2002). We classify a firm as globally diversified if it has any sales from foreign segments. From Denis and Denis (2002) studies, we find that there is an interaction between industrial diversification and global diversification. To control this factor to ensure our results more precisely, we separate our samples into four diversification types. We separate our sample on the basis of whether one firm is globally or industrially diversified in that year. A firm is classified as multi-segment or industrial diversification if they report more than one segment. Besides, one firm is classified as multinational or global diversification if they have any foreign sales. In sum, according to our results, improvement of global capital market is also an important determinant of global diversification discount.
Sample selection and methodology in this paper mainly follows Berger and Ofek (1995) and Denis and Denis (2002). We classify a firm as globally diversified if it has any sales from foreign segments. From Denis and Denis (2002) studies, we find that there is an interaction between industrial diversification and global diversification. To control this factor to ensure our results more precisely, we separate our samples into four diversification types. We separate our sample on the basis of whether one firm is globally or industrially diversified in that year. A firm is classified as multi-segment or industrial diversification if they report more than one segment. Besides, one firm is classified as multinational or global diversification if they have any foreign sales. In sum, according to our results, improvement of global capital market is also an important determinant of global diversification discount.
Subjects
全球多角化
資本市場
多角化折價
Global diversification
capital market
diversification discount
SDGs
Type
thesis