Corporate Diversification and Agency

Benjamin E. Hermalin and Michael L. Katz.
Authors registered in the RePEc Author Service: Michael L. Katz () and Benjamin Hermalin

No 94-227, Economics Working Papers from University of California at Berkeley

Abstract: By a well-known argument, securities holders do not directly benefit from risk-reducing corporate diversification when they can replicate this diversification on their own. Some have argued that corporate diversification may be of value, or can otherwise be explained by, the agency relationship between securities holders and managers. We argue that the value of diversification in an agency relationship derives not from its effects on risk, but rather from its effects on the principal's information about the agent's actions.

Date: 1994-02-01
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Citations: View citations in EconPapers (1)

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