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Does debt diversification impact firm value? Evidence from India

Nemiraja Jadiyappa, L. Emily Hickman, Pavana Jyothi, Narender Vunyale and Bhanu Sireesha

International Review of Economics & Finance, 2020, vol. 67, issue C, 362-377

Abstract: Corporate debt diversification (firms simultaneously utilizing multiple distinct debt sources) is a global phenomenon. However, how such financing affects firm value has not yet been examined. Using Indian firms, we investigate debt diversification’s impact on monitoring effectiveness, agency costs, and financial constraints – which can all affect market value. Results reveal a negative impact of debt diversification on firm value, particularly among group-affiliated firms. This negative impact is attributed to free riding among lenders: evidence suggests that increased agency costs resulting from inferior monitoring contributes to worse firm accounting performance. Further, debt diversification does not appear to reduce financial constraints.

Keywords: Debt diversification; Firm value; Agency costs; Corporate governance; Group-affiliated firms (search for similar items in EconPapers)
JEL-codes: G3 G2 G32 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.iref.2020.02.002

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