Easing Financing and M&A Investment Constraints: The Role of Corporate Industrial Diversification

Henry Agyei-Boapeah ()
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Henry Agyei-Boapeah: Accounting & Finance Group, The York Management School, University of York Freboys Lane

Annals of Economics and Finance, 2017, vol. 18, issue 2, 277-290

Abstract: This article examines how corporate industrial diversification could ease, or even eliminate firms' financing and investment constraints. Drawing from the trade-off theory of capital structure, the paper argues and finds that overleveraged firms do face significant investment constraints in the form of a reduced ability to initiate and complete M&As. Furthermore, the paper shows that the financing and investment constraints are reduced when firms undertake diversifying acquisitions compared to when they pursue related acquisitions. Overall, the findings improve our understanding of how the perceived risks/benefits associated with planned investments do influence ex-ante corporate financing/investment constraints.

Keywords: Corporate industrial diversification; Leverage deficit; Overleverage; Financing constraint; M&As (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2017:v:18:i:2:agyei-boapeah

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