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

Chongwoo Choe, Tania Dey and Vinod Mishra
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Tania Dey: Pricing and Analysis Group, Essential Services Commission of South Australia, Adelaide, Australia

Australian Journal of Management, 2014, vol. 39, issue 3, 395-414

Abstract: We estimate the effect of corporate diversification on firm value using a sample of 766 segment-year observations during 2004–2008 for firms listed on the Australian Stock Exchange as of August 2009. In addition to conventionally used measures of diversification, we develop five new measures of diversification that explicitly take into account the degree to which a multi-segment firm’s various segments are in related lines of business. We use three different excess value measures to estimate the valuation effect of diversification. We find that multi-segment firms in our sample enjoyed a significant diversification premium that ranges from 12.4% to 18% depending on the measures of diversification and excess value. We also find some evidence that multi-segment firms benefit more from diversification when their executives are motivated more through long-term incentives such as stock and stock options.

Keywords: Corporate diversification; executive compensation; excess value (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (16)

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Working Paper: CORPORATE DIVERSIFICATION, EXECUTIVE COMPENSATION, AND FIRM VALUE: EVIDENCE FROM AUSTRALIA (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:39:y:2014:i:3:p:395-414

DOI: 10.1177/0312896213499027

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