Managerial ownership, diversification, and firm performance: Evidence from an emerging market

Chiung-Jung Chen and Chwo-Ming Joseph Yu

International Business Review, 2012, vol. 21, issue 3, 518-534

Abstract: Numerous existing studies have explored the impact of corporate diversification on firm performance, whereas considerably less research has investigated the inter-relationships among managerial ownership, diversification, and firm performance. This paper develops several hypotheses based on the agency theory self-interest perspective and tests the relationships among managerial ownership, corporate diversification, and firm performance using a sample of 98 emerging market firms listed on the Taiwan Stock Exchange. The results show a U-shaped relationship between managerial ownership and corporate diversification, similar to that found in prior studies. However, the inflection point is 33.17%, which is lower than that found in previous studies. Moreover, in contrast to prior results, corporate diversification is found to be positively associated with short-term firm performance and bears no relationship with mid-term firm performance, while firms engaged in unrelated diversification outperform those engaged in related diversification. This paper concludes with theoretical implications and suggestions for future research.

Keywords: Agency theory; Corporation diversification; Emerging market; Firm performance; Managerial ownership (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (41)

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DOI: 10.1016/j.ibusrev.2011.06.002

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