"Responsible Diversification: Knowing Enough About Diversification To Do It Responsibly: Motives, Measures And Consequences "

Abstract

Diversifying in a responsible way is a challenge that many firms face today. In this survey we posit whether firms should diversify and whether it is a way to create value, since the motives leading to diversification are not always addressed to satisfying all stakeholders, and as a consequence the outcome may be different from the one expected. Our aim is to smooth the way for managers, shareholders, professionals and decision-makers in general by offering an exhaustive and rigorous description of the lessons provided by the literature, analyzing the reasons for diversifying or not, describing the costs and benefits of the process and analyzing the discount on firm value.

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

“…Researchers have suggested several motives for the diversification decision (see Briglauer, 2000; Fox and Hamilton, 1994; García et al , 2013; Montgomery, 1994). Fox and Hamilton (1994) grouped these into stewardship and agency motives.…”

“…Fox and Hamilton (1994) grouped these into stewardship and agency motives. Stewardship motives are those that seek the interest of the firm and its shareholders and are likely to produce positive performance (Dey and Banerjee, 2019; Fox and Hamilton, 1994; García et al , 2013; Ibekwe, 2021; López-Zapata et al , 2019). The agency motives for diversification are those that satisfy the personal interests of the managers and controlling shareholders and are likely to result in negative performance (Fox and Hamilton, 1994; Holmes et al , 2017; Ibekwe, 2021; Purkayastha et al , 2022).…”

“…The continued diversification of firms despite the diversification discount calls into question the motive for corporate diversification (Goold and Luchs, 1993; Hyland and Diltz, 2002). The motive for corporate diversification is crucial for firm performance and sustainability (Dey and Banerjee, 2019; García et al , 2013; López-Zapata et al , 2019; Taĝ, 2017). Some researchers argue that the performance outcomes of diversification are more likely to be negative where managerial self-interest (agency problems) motivate corporate diversification and positive otherwise (Ahuja and Novelli, 2017; Dey and Banerjee, 2019; García et al , 2013; López-Zapata et al , 2019; Taĝ, 2017).…”

“…Investors who invest in diversified firms might benefit more from investing in firms with less concentrated ownership, as the motivation may be principal–principal agency conflicts. As some authors have shown, agency-driven diversification is likely to be value-destroying (Ahuja and Novelli, 2017; Dey and Banerjee, 2019; García et al , 2013; López-Zapata et al , 2019; Taĝ, 2017).…”