Corporate diversification and debt financing: Do family shareholders protect their control rights?

Abstract

The study explored the relationship between corporate diversification and the debt choice of listed 712 Malaysian family firms for the period from 2016 to 2020. Tobit regression results revealed that industrial diversified firms preferred debt financing, while geographically diversified firms rejected debt. With family control, firms that conducted both types of diversification activities rejected debt financing. Further, for the case of maturity structure of debt, family firms engaged in diversification activities tend to borrow short-term debt, thereby reducing their ownership's risk of dilution and boosting their short-term market goals by improving the creditors' shortterm monitoring function. Policy implications are discussed.

Global diversification, profitability and revenue creation: Evidence from an emerging economy

“…Geographically diversified firms may be able to improve their performance by utilising their internal capital market, although the excessive conduct of GD makes integration difficult. According to Subramaniam and Hosen (2023), geographically diverse businesses rejected debt financing, whereas industrially diversified businesses preferred it. In the 1990s, scholars discovered a nonlinear relationship between GD and ID and performance (Feng et al, 2021; Serrano et al, 2018), whilst others discovered no relationship at all.…”