Corporate diversification, executive compensation and firm value: Evidence from Australia

Choe, Chongwoo; Dey, Tania; Mishra, Vinod; Park, In-Uck

doi:10.1177/0312896213499027

Cited by 34 publications

(29 citation statements)

References 31 publications

(50 reference statements)

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“…firm size among others that motivate a business group to acquire/select a firm under his control; and these factors affecting the propensity of a firm to be a group affiliate may also influence firm performance. Hence, selection of a firm to be a group affiliate or not may not be random rather it is based on some firm specific factors [Choe, et al (2014)] and further, firm performance may be dynamic in nature [Mishra (2014)].…”

Section: Methodsmentioning

confidence: 99%

“…Ghani, Haroon and Ashraf (2011) and Ahmad and Kazmi (2016) find superior performance (measured by ROA) whereas Gohar and Karacaer (2009) observe lower performance of group affiliated firms than stand-alone firms. Further, there is an increasing concern regarding the endogeneity problem and selection bias in group affiliation-performance relationship [Choe, et al (2014)]. OLS has been used in earlier studies that does not appropriately handle these issues and the present study attempts to address them.…”

Section: Introductionmentioning

confidence: 99%

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Business Group Affiliation and Firm Performance—Evidence from Pakistani Listed Firms

Waseemullah¹,

Hasan²

2018

PDR

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This study analyses the financial performance of business group affiliated firms relative to stand-alone firms in Pakistan. The investigations are done across the sample period of 1993-2012. The study employs 'Chop shop' methodology to construct the excess values (performance measure); in order to compare the results with earlier well documented studies of both developed and emerging countries. Both univariate and regression analyses clearly demonstrate that group affiliated firms are trading at discount (underperform relative to standalone firms) during the sample period. Despite the historical success in the past, the findings suggest that business groups evolve differently in the post financial reforms and privatisation programs era. The findings are consistent with the market failure argument and agency theory. However, the study finds a little evidence of efficient internal markets of Pakistani business groups.

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Section: Methodsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Business Group Affiliation and Firm Performance—Evidence from Pakistani Listed Firms

Waseemullah¹,

Hasan²

2018

PDR

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“…25 On one hand, Fleming, Oliver, and Skourakis (2003) find that diversified firms suffer a diversification discount between 1988 and 1998. On the other hand, Choe, Dey and Mishra (2014) show that Australian diversified firms enjoy a diversification premium (2004 -2008).…”

Section: Mergers and Acquisitionsmentioning

confidence: 99%

“…It would be interesting for future research to use the five measures of diversification in Choe et al (2014) to re-examine the findings by Fleming et al (2003). Furthermore, future research can examine whether the following two channels in other countries can explain the diversification premium found in Australia: 1) through lower probability of default for the smallest and least focused firms in the U.S. (Grass, 2012), and 2) through adopting good corporate governance policies in New Zealand and the U.S. (Al-Maskati, Bate, and Bhabra, 2015;Starks and Wei, 2013).…”

Section: Mergers and Acquisitionsmentioning

confidence: 99%

A Contemporary View of Corporate Finance Theory, Empirical Evidence and Practice

2015

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This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals. Abstract This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals.

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“…However, we also choose not to extend this analysis beyond 2008 because in the years following the Global Financial Crisis (GFC), the compensation and segment financial conditions of many Australian multi-segmental firms got worse due to increased global risk. This would have introduced unnecessary complexity in our analysis and could have potentially biased our empirical results due to sample selection issues (see Choe et al, 2014).…”

Section: Datamentioning

confidence: 99%

How Does Influence Activity Affect the Allocation of Firms’ Internal Capital? Evidence from Australia

Mishra

Banerjee

Dey³

2014

J of App Econs and Policy

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This paper analyses how influence activities in the form of signal jamming affect the capital budgeting process of corporate organisations in Australia. Empirical results suggest that investment sensitivity (the relationship between investment in the smallest segment and its past performances) is positive for Australian firms. However, when influence problems within a firm become more severe, mixed evidence is obtained for different measures of influence activity. With an increase in the number of segments, influence activity becomes more severe and headquarters relies more on a public signal. In contrast, with the increase in relatedness across segments, the influence problem increases and headquarters relies more on private information from the manager of the large segment. Evidence suggests that Australian firms provide high short‐term incentive payments to managers of large segments to mitigate the influence activity problems, and thus rely more on managerial recommendations for investing in the smallest segment.

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Corporate diversification, executive compensation and firm value: Evidence from Australia

Cited by 34 publications

References 31 publications

Business Group Affiliation and Firm Performance—Evidence from Pakistani Listed Firms

Business Group Affiliation and Firm Performance—Evidence from Pakistani Listed Firms

A Contemporary View of Corporate Finance Theory, Empirical Evidence and Practice

How Does Influence Activity Affect the Allocation of Firms’ Internal Capital? Evidence from Australia

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