Tobin's Q, Corporate Diversification and Firm Performance

In this paper, we show that Tobin's q and firm diversification are negatively related. This negative relation holds for different diversification measures and when we control for other known determinants of q. We show further that diversified firms have lower q's than equivalent portfolios of specialized firms. This negative relation holds throughout the 1980s in our sample. Finally, it holds for firms that have kept their number of segments constant over a number of years as well as for firms that have not. In our sample, firms that increase their number of segments have lower q's than firms that keep their number of segment constant. Our evidence is consistent with the view that firms seek growth through diversification when they have exhausted internal growth opportunities. We fail to find evidence supportive of the view that diversification provides firms with a valuable intangible asset

Corporate growth, financing, and risks in the decade before East Asia's financial crisis

East Asia's financial crisis has been attributed in part to the weak performance and risky financial structures of Asian corporations. In the period before Asia's financial crisis, however, analysts were not suggesting that the financial structure of many East Asian corporations would be unable to withstand the combined shocks of increased interest rates, depreciated currencies, and large drops in domestic demand. To document the basic record of corporate performance and financing structures for East Asian corporations, the authors analyze data for 5,550 firms in nine countries for the period 1988-96. They find large differences in performance and financial structure across countries. Profitability - as measured by real return on assets (ROA) in local currency -- was relatively low in Hong Kong, Japan, the Republic of Korea, and Singapore in the decade before the crisis. Corporations in Indonesia, the Philippines, and Thailand averaged high returns - roughly double those in Germany and the United States for the same period. In 1994-96, measured performance declined somewhat in several East Asian countries, especially Japan and Korea. Those differences in performance were not fully reflected in sales growth, as investment rates were high and continued to drive output growth in all countries. These stylized facts suggest that the East Asian miracle was indeed based on a vibrant corporate sector. But the combination of high investment and relatively low profitability in some countries meant that much external financing was needed. Outside equity was used sparingly - in part because stock markets were depressed (Japan) or because insiders preferred to retain control - so borrowing was heavy in most East Asian countries, and leverage increased in the years before 1996 in Korea, Malaysia, and Thailand. Risk increased as short-term (foreign exchange) borrowing became increasingly important in the 1990s, especially in Malaysia, Taiwan (China), and Thailand. In other words, it is now apparent that some of the vulnerabilities in corporate financial structures that were to become an important factor in East Asia's financial crisis already existed in the early 1990s, although they were not noted at the time.International Terrorism&Counterterrorism,Payment Systems&Infrastructure,Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Banks&Banking Reform,Environmental Economics&Policies,International Terrorism&Counterterrorism,Economic Theory&Research,Financial Intermediation

Leverage, Investment, and Firm Growth

We show that there is a negative relation between leverage and future growth at the firm level and, for diversified firms, at the segment level. Further, this negative relation between leverage and growth holds for firms with low Tobin's q, but not for high-q firms or firms in high-q industries. Therefore, leverage does not reduce growth for firms known to have good investment opportunities, but is negatively related to growth for firms whose growth opportunities are either not recognized by the capital markets or are not sufficiently valuable to overcome the effects of their debt overhang.

Asset Sales, Firm Performance, and the Agency Costs of Managerial Discretion

We argue that management sells assets when doing so provides the cheapest funds to pursue its objectives rather than for operating efficiency reasons alone. This hypothesis suggests that (1) firms selling assets have high leverage and/or poor performance, (2) a successful asset sale is good news and (3) the stock market discounts asset sale proceeds retained by the selling firm. In support of this hypothesis, we find that the typical firm in our sample performs poorly before the sale and that the average stock-price reaction to asset sales is positive only when the proceeds are paid out.

An Interdisciplinary Curriculum Model for Outdoor Education

The primary purpose of this study was to develop an interdisciplinary curriculum model which would improve the conceptualization, of outdoor education by providing a theoretical framework for curriculum development, evaluation, and further research. In order to create the proposed model, it was necessary to address several related issues. The first phase of the study involved an investigation of current perspectives on outdoor education. Key characteristics and guiding principles were determined to provide a clarification of the substantive structure of this field of study. An analysis and synthesis of the contributions of John Dewey,.L.. B. Sharp, Julian Smith, and other prominent educators provided the basis for the development of a rationale and philosophical foundation for contemporary outdoor education programs. The second phase of the study was centered on an examination of curriculum development theory. A set of Vcilue orientations derived from an analysis of conventional curriculum designs, coupled with the structural elements of a curriculum model which were formulated by the author, provided the framework for identifying distinctive patterns with respect to existing outdoor education programs. Based on an analysis of 25 representative school programs from three Canadian provinces and seven U.S.A. states, the following five generic models were identified and described: (1) traditional subject-matter model; (2) thematic/conceptual approach; (3) environmental/ecological studies; (4) eidventure pursuits model\u27; and (5) school camping-. The final phase: of the study included a detailed description of the proposed interdisciplinary curriculum model for outdoor education. The format used to describe the model was based on the following structural elements of a curriculum model: (1) the’definition, purpose, and goals of outdoor education; (2) the underlying value orientation; (3) the nature and scope of content; (4) implementation procedures\u27; and (5) the process of evaluation . One of the main features of the proposed Model Centered on a discussion of a unique body of content for outdoor education. Three main content dimensions were defined: (1) Specially selected outdoor activities; (2) learning processes; and (3) content derived from academic disciplines

The Benefits and Costs of Group Affiliation: Evidence from East Asia

business group, group affiliation, East Asian corporations

Troubled savings and loan institutions: voluntary restructuring under insolvency

Regulatory agencies are unwilling or unable to close thrift institutions immediately upon insolvency. Instead, they have progressively reduced the thrift capital requirement, refrained from enforcing that requirement, and allowed thrifts to hold more nonmortgage loans in the hope that the industry would recover. According to this study, only 13 percent of the largest 300 firms eventually recovered between the end of 1979 and the end of 1989. When the thrift crisis surfaced in the early 1980s, the firms that ultimately recovered operated in a fashion similar to those that eventually failed. But in the mid-1980s, recovered thrifts pursued a risk-minimizing strategy, while nonrecovered thrifts pursued a risky, high-growth strategy. We find no evidence that managers of unsuccessful firms consumed more perquisites than their successful counterparts.Savings and loan associations

Who controls East Asian corporations ?

The authors identify the ultimate ownership structure for 2,980 corporations in nine East Asian countries. They find that: A) More than half of those firms are controlled be a single shareholder. B) Smaller firms and older firms are more likely to be family-controlled. C) Patterns of controlling ownership stakes differ across countries. The concentration of control generally diminishes with higher economic and institutional development. D) In many countries control is enhanced though pyramid structures and deviations from one-share-one-vote rules. As a result, voting rights exceed cash-flow rights. E) Management is rarely separated from ownership control, and management in two thirds of the firms that are not widely held is related to management of the controlling shareholder. F) In some countries, wealth is very concentrated and links between government andbusiness are extensive, so the legal system has probably been influenced by the prevailing ownership structure.Small and Medium Size Enterprises,Microfinance,Small Scale Enterprise,International Terrorism&Counterterrorism,Economic Theory&Research,Microfinance,Private Participation in Infrastructure,Small Scale Enterprise,Rural Land Policies for Poverty Reduction,Economic Theory&Research

The Benefits and Costs of Internal Markets: Evidence from Asia's Financial Crisis

This study examines the role of internal capital markets and diversification during normal and turbulent times. We hypothesize that internal markets are more valuable for firms in countries with less-developed financial markets and that diversification generally reduces risk. To conduct our tests, we study 3,000 East Asian corporations over the period before and during the 1997-1998 financial crisis. We find support for the internal market hypothesis during normal times. We find, however, that more diversified firms perform worse during a crisis, especially in less-developed countries. This suggests that more diversification and greater usage of internal markets is associated with higher risk-taking, especially when external markets are less developed.

The Costs of Group Affiliation: Evidence from East Asia

We examine the costs of business group affiliation using data for 2,600 firms in nine East Asian economies for the 1994-1996 period. We find that group-affiliated firms are on average valued below independent firms, with the discount attributable to firms whose ultimate owners have voting rights exceeding cash-flow rights. When there is no divergence between voting and cash flow rights, group-affiliated firms actually have a slight value premium over independent firms. Our results are robust to different valuation measures, time periods and estimation techniques. The evidence is consistent with the view that the anticipation of expropriation associated with group affiliation more than offsets any possible benefits of group membership.