Corporate diversification and asymmetric information: evidence from share repurchases announcements
Date Issued
2007
Date
2007
Author(s)
Chen, Yu-Ling
DOI
en-US
Abstract
Empirical studies of how corporate diversification affects the information asymmetry problems have been scanty. The contribution of this paper is to examine the relation between diversification and asymmetric information problems by testing announcement returns of share repurchase programs. In this paper, we utilize Thomas (2002) two hypotheses to explain the predicted results. One is the transparency hypothesis and the other is the information diversification hypothesis. In addition, we supplement with the inefficient investment hypothesis. In the cross-sectional regression, the coefficient on asset-based Herfindahl index is significantly negative. The result supports the transparency hypothesis. That is, the conglomerate form of organization makes the accounting figures more complex and less transparent. Therefore, diversification makes the information asymmetry problems more severe. As for the inefficient investment hypothesis, the coefficients on different overinvestment proxies are mixed. Thus, the effect of overinvestment problem is inconclusive.
Subjects
多角化
庫藏股
事件研究法
異常報酬
diversification
information asymmetry
share repurchase announcements
event study
abnormal return
Type
thesis