Internal capital markets and diversified firms: Theory and practice

Gatzer, Sebastian; Hoang, Daniel; Ruckes, Martin

doi:10.5445/ir/1000044663

Cited by 1 publication

(12 citation statements)

References 108 publications

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“…Another stewardship motive cited frequently was the need to boost sales, reverse dwindling fortunes brought about by increasing competition and protect themselves against adverse environmental developments such as hostile economic policies and regulations. These stewardship motives are consistent with the findings of Bowen et al (2015), Gatzer et al (2014) and Fox and Hamilton (1994).…”

Section: Corporate Executives In Nigeriasupporting

confidence: 90%

“…Anderson et al (2000) conjectured that this could be due to the cost of refocusingthe cost of breaking explicit and implicit contracts with various stakeholdersthat could be greater than any benefits from refocusing. Smith and Coy (2018) The problem with the studies that have attempted to explain the motives for corporate diversification is that the researchers inferred the agency motive indirectly from the managerial ownership-diversification relationship and the performance outcomes of diversification (Gatzer et al, 2014). Although this approach is insightful, it says little about the diversification motive because the researchers did not incorporate the views of the executives who make the diversification decisions (Gatzer et al, 2014).…”

Section: Agency Motives For Diversificationmentioning

confidence: 99%

“…Smith and Coy (2018) The problem with the studies that have attempted to explain the motives for corporate diversification is that the researchers inferred the agency motive indirectly from the managerial ownership-diversification relationship and the performance outcomes of diversification (Gatzer et al, 2014). Although this approach is insightful, it says little about the diversification motive because the researchers did not incorporate the views of the executives who make the diversification decisions (Gatzer et al, 2014). Related studies that surveyed corporate executives focused on mergers and acquisitions (e.g.…”

Section: Agency Motives For Diversificationmentioning

confidence: 99%

“…Alessandri and Seth, 2014; Briglauer, 2000; Chen and Yu, 2012; Denis et al , 1997; Hyland and Diltz, 2002; La Rocca et al , 2021; Sener and Akben-Selcuk, 2020; Smith and Coy, 2018; Talukdar et al , 2021). The only study that explored the perspective of corporate executives to understand the motive for corporate diversification – Gatzer et al (2014) – did not address agency motives because, according to the author’s, “CFOs may be reluctant to admit potentially value-reducing motives related to agency issues” (p. 8).…”

Section: Introductionmentioning

confidence: 99%

“…Moreover, Gatzer et al (2014) focused on 11 Western European countries and may not shed much light on the motives for corporate diversification in emerging markets where the institutions are different. There is evidence that differences in the institutional context influence strategic decisions and their outcomes (Chen et al , 2020; Kuppuswamy et al , 2014; La Rocca et al , 2021; Sun et al , 2017).…”

Section: Introductionmentioning

confidence: 99%

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Agency motives and the corporate diversification decision: perspectives of corporate executives in Nigeria

Ibekwe

2023

QRFM

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Purpose The purpose of this study was to explore the motives (especially the agency motives) for corporate diversification from the perspective of corporate executives who make such strategic decisions and manage the diversified firms daily. Design/methodology/approach A qualitative research approach was adopted, and 12 chief executive officers (CEOs) of diversified firms in Nigeria were interviewed for their perspectives on the motives for corporate diversification. Findings Stewardship motives – diversification to use excess capacities in assets and resources to exploit opportunities in the market and defend against adverse environmental developments – were the most cited reasons for diversification. The relevant agency problem related to corporate diversification motive in Nigeria is the principal–principal (majority shareholder-minority shareholder) one. CEOs with substantial holdings in their firms indicated that they use diversification to reduce their investment risk and retain control of their portfolio. Practical implications The findings suggest that in corporate environments such as Nigeria that feature blockholding prominently, the corporate strategy-related agency problem that policymakers should pay greater attention to is the principal–principal conflict rather than the traditional agent–principal problem that has influenced corporate governance over the years. There is also a need to revise the dominant view that diversification is a value-destroying strategy motivated by the self-seeking behavior of managers who have little or no shares in the companies they manage. Originality/value The few studies on motives for corporate diversification that incorporated the perspectives of corporate executives did not address the agency motives of diversification. To the best of the authors’ knowledge, this is the first study that has done so.

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Section: Corporate Executives In Nigeriasupporting

confidence: 90%