Using a sample of 44,288 firm-years between 1984 and 1997, we document an increase in the extent of global diversification over time. This trend does not ref lect a substitution of global for industrial diversification. We also find that global diversification results in average valuation discounts of approximately the same magnitude as those for industrial diversification. Analysis of the changes in excess value associated with changes in diversification reveals that increases in global diversification reduce excess value, while reductions in global diversification increase excess value. These findings support the view that the costs of global diversification outweigh the benefits.

No abstract

No abstract

PurposeThe purpose of this paper is to investigate the effect of corporate governance strength as measured by the Gompers governance index (gindex) and other related factors on corporate risk as measured by implied volatility of returns.Design/methodology/approachThe research incorporates implied volatility as the measure of risk, as compared to earlier studies that have used historic volatility measures. Governance variables include the Gompers Index, as well as other measures to control for firm size, ownership and leverage.FindingsThe findings indicate that corporate risk is significantly inversely‐related with the gindex, which essentially gauges how extensively antitakeover provisions are adopted by a firm. Firm size is the other variable significant in both univariate and multivariate models. Financial leverage and the percentage of outsiders on the board are significantly related to firm risk when not controlling for other factors. Board percentage of voting power does not appear to affect firm riskiness statistically.Research limitations/implicationsFuture research needs to examine specifically why higher takeover defenses lead to lower implied volatility. This includes exploring whether the lower level of expected volatility is due to lower levels of takeover activity or whether firms with poor governance assume a suboptimal amount of risk.Originality/valueThe paper contributes to the literature by the use of implied volatility as the measure of risk. The results are robust and provide further support for the relationship between corporate governance and risk. While counter to initial expectations, these results suggest, at the very least, a firm with good governance may not necessarily have low implied volatility in its stock price.

Cross-border banking, Bank mergers and acquisitions, Bank regulation, G00, G10,