The Benefits of Global Diversification

International diversification reduces total risk to a portfolio by adding uncorrelated assets and brings higher long-term returns. In this study, the research looks to see if any single country index or continent index consistently outperforms a diversified value-weighted global market index. In order to value-weight the global index, the study uses the International Monetary Fund’s voting shares of each country and equates each voting share to each country or continent’s stake within the value-weighted global market index. To correct for currency exchange, the study uses iShares and other ETFs denoted in the United States Dollar. The value-weighted global market index is based off of compound interest off of one dollar invested in a specific year in which the investment started. With all of these in place, the study creates a fund of funds representing the world economy. The conclusion of this study is that because of the Efficient Market Hypothesis, no one country or continent consistently outperforms the value-weighted global market index based on the risk premium of each country or continent in relation to the value-weighted global market index and subsequent regression analysis

Systemic risk determinants in the European banking industry during financial crises, 2006-2012

The recent financial turmoil has stimulated a rich debate in banking and financial literature on the identification of systemic risk determinants and devices to forecast and prevent crises. This paper explores the contribution of corporate variables to systemic risk using the CoVaR approach (Adrian and Brunnermeier, 2016). Using balanced panel data on 141 European banks from 24 countries, which were listed from 2006Q1 to 2012Q4, we investigated the impact of corporate variables during the three regimes that characterised the European banking sector-the subprime crisis (2007Q3-2008Q3), the European Great Financial Depression (2008Q4-2010Q2), and the sovereign debt crisis (2010Q3-2012Q4). Our results show that size did not play a significant role in spreading systemic risk, while maturity mismatch did. However, the nature and intensity of these two determinants varied across the three regimes

THE EFFECT OF GOOD CORPORATE GOVERNANCE IMPLEMENTATION IN DIVERSIFICATION STRATEGY OF FAMILY COMPANY AND ITS EFFECT ON FIRM VALUE

Purpose: This study aims to analyze the relation of GCG implementation and diversification strategy in the family company and its effect on the corporate value that is proxied with returns of corporate share (cumulative abnormal return - CAR). Methodology: This study used control variables which were size, age, and growth of the company. The hypothesis test was done by using multiple regression and an average T-test. The samples of this study were companies listed in Indonesian Stock Exchange that have fulfilled the characteristics of concentrated share ownership by one family. This formulated two-equation models i.e. Dependent variable for equation model I was diversification strategy and for equation model II was corporate value. Results: The result of this study shows that management compensation, independent commissioners, and managerial ownership positively affect, while the number of the audit committee and leverage ratio do not affect diversification strategy. The next testing result was a diversification strategy applied by the family company that positively affects corporate value. Implications: In order to conduct a controlling function, a company must plan the existence of good corporate governance (GCG) that organizes the relation and responsibility between many parties involved in the company, that a number of regulations, policies, and procedures. The implementation of GCG is expected able to guarantee the action of management in line with the interest of shareholders

Does Investment Structure Matters in the Nexus Between Income Diversification and Financial Performance in Comesa Region? Evidence from Commercial Banks in Kenya

Purpose: The article examines whether investment structure moderates the relationship between income diversification and financial performance of Commercial banks in COMESA region. Approach/Methodology/Design: The study adopted positivist research paradigm and explanatory research design. The data was collected from 31 commercials banks in Kenya from 2008 to 2019.The study considered the following variables: Income Diversification, Investment Structure and Financial Performance. Modern portfolio theory, Agency theory and resource based view theory were adopted. Findings: The study established that income diversification have positive significant effects on the financial performance. The bank investment structure recorded a negative significant effect on financial performance of the commercial banks. Further, the interaction between investment structure and income diversification presented a negative significant effect on financial performance of the commercial banks. The study adds to debate on diversification premiums and discounts by establishing that investment structure moderates the relationship between income diversification and financial performance. COMESA banks   have reasons to diversify their income but should consider the mix of the investment structure   to achieve optimum results. Practical Implications: Since the study support the benefits of diversification, COMESA as a region can accelerate on pushing for policies that encourage bank diversification to improve the profitability. Additionally, the diversifying banks should optimally adjust their investment structures to propel diversification benefits   to compensate the declining interest income. Originality/value: This study contributes to conflicting diversification premiums and discounts by introducing the moderating role of bank investment structure, this indirect effects adds to modern portfolio theory and agency theory  that asserts direct relationship of both diversification premiums and discounts respectively

O efeito da diversificação corporativa na estrutura de capital das firmas brasileiras

This study aims to determine whether corporate diversification increases the borrowing capacity of Brazilian companies by means of cross-pledging. Using a panel data model, we estimated the relationship between leverage and the degree of corporate diversification using a sample of companies listed on the São Paulo Stock Exchange (Bovespa) between 2009 and 2011 and Brazilian companies with access to international markets through American Depositary Receipts (ADRs) in the period 2003-2011. Using empirical tests, we found no relationship between diversification and debt in either sample, indicating that a strategy of corporate diversification should not be used as a strategy to expand a company's financing capacity.Este trabalho tem por objetivo verificar se a diversificação corporativa aumenta a capacidade de endividamento das firmas brasileiras por meio do cross-pledging. Utilizando o modelo de dados em painel, estimamos a relação entre alavancagem e o grau de diversificação corporativa usando uma amostra de empresas listadas na Bolsa de Valores de São Paulo (Bovespa) entre 2009 e 2011 e utilizando empresas brasileiras com acesso ao mercado internacional através de American Depositary Receipts (ADRs) no período de 2003 a 2011. Por meio dos testes empíricos, encontramos a não relação entre diversificação e endividamento em ambas as amostras, indicando que a estratégia de diversificação corporativa das empresas não deve ser utilizada como estratégia de expansão de sua capacidade de financiamento

Financial Crises and Investment Behavior: The Impact of Institutional Investors

The following dissertation contains two related essays. The first essay explores how institutional investor presence impacts investments during the global financial crisis. Using OLS, industry fixed effects, and Heckman 2SLS regression approaches, I explore two ways through which institutional investors could impact investments: liquidity and monitoring. My findings best support monitoring theory. I find that institutional investors monitor capital and R&D levels to maximize crisis period firm value. The second essay is a direct fallout from my first essay. In it, I investigate how institutional investor types influence investments. I ask, do certain types of investors improve liquidity or monitor firm investment behavior during the global financial crisis? My results suggest that long-term, dedicated institutional investors monitor firm investments more than short-term, transient investors. As a result, firms with greater dedicated investor presence perform better during the crisis periods than their peers

According to Agency Theory and Neoclassical Theory; New Ownership and Diversity of Public Sector Companies in Corporate Life Cycle

The purpose of this study is investigating and determining rate of seizing assets and acquisition other companies by public sector companies. We estimate this rate at various stages of the life cycle of the company. Therefore, according to their size and age, the companies have been divided into small, large, young, and mature groups, and for this purpose, we have collected data from a sample of 45 companies of the public sector from three Iranian provinces. We have tested our analyses from the viewpoints of agency and neoclassical theories and discussed the results of the independent t tests. The results showed that with increase in age and size, public sector companies are more likely to seize the fixed assets of other companies to restructure and achieve improved operations. However, in the case of assuming ownership of other companies done through buying the companies, most public sector companies do this in the middle of their lifetime and in the course of their growth

Business model diversification. Demand relatedness, entry sequencing, and curvilinearity in the diversification-performance relationship

This study integrates research on business model diversification (BMD) and demand-side theory to examine the relationship of BMD to performance and the sequencing of business model additions. We begin by explaining and demonstrating that the overall degree of BMD has an inverted U-shaped relationship with firm performance. We next highlight the particular role that demand relatedness plays in BMD. We first provide evidence that the inverted U-shaped relationship flattens in times of financial shocks, consistent with arguments that the benefits of BMD from consumers’ willingness-to-pay for simultaneous use of multiple business models may diminish during shocks. Second, we argue that firms tend to sequence the addition of new business models based on demand relatedness, and we provide evidence that the degree of demand relatedness between a core and a target business model enhances the likelihood of diversification into that target business model

Does family control matter? International evidence from the 2008-2009 financial crisis

We study whether and how family control affects valuation and corporate decisions during the 2008–2009 financial crisis using a sample of more than 8,500 firms from 35 countries. We find that family-controlled firms underperform significantly, they cut investment more relative to other firms, and these investment cuts are associated with greater underperformance. Further, we find that within family groups liquidity shocks are passed on through investment cuts across the group. Our evidence is consistent with families taking actions to increase the likelihood that the firms under their control and their control benefits survive the crisis, at the expense of outside shareholders