 Corporate diversification, investment efficiency and the business cycle11This work is supported by Shenzhen Humanities & Social Sciences Key Research BasesYolanda Yulong Wang Journal of Corporate Finance, 2023, vol. 78, issue C Abstract: I document the time-varying investment efficiency of conglomerates compared with single-segment firms. I find that, during recessions, conglomerates have higher Q-sensitivity of investment than do stand-alone firms, in contrast to the relationship during expansion periods. I also find that conglomerates, with the benefits from internal capital markets, exhibit increased dependence of investment on internal capital during recessionary periods, while stand-alone firms significantly increase cash retention and deviate their investment from its optimal level more severely. I examine the effect of the degree of diversification and find consistent evidence on investment efficiency and deployment of internal capital. I also provide evidence that conglomerates with stronger governance do not improve investment efficiency during recession, which suggests that agency costs cannot fully explain the changes in investment of conglomerates. Keywords: Corporate diversification; Internal capital markets; Capital allocation; Business cycle; Time-varying agency costs; Corporate governance (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:78:y:2023:i:c:s0929119923000020 DOI: 10.1016/j.jcorpfin.2023.102353 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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