TITLE:
International Diversification, Excessive Growth, and Corporate Governance
AUTHORS:
Mengyang Guo, Justin Yiqiang Jin, Mary Li Zhi Ma
KEYWORDS:
International Diversification, Segment Earnings Disclosure, Corporate Governance, Information Asymmetry
JOURNAL NAME:
Theoretical Economics Letters,
Vol.9 No.7,
October
11,
2019
ABSTRACT: This study examines the relationship between
international diversification and firms’ access to external capital to finance
growth opportunities. We hypothesize that moral hazards, adverse selection, and
home bias arise when firms expand across borders. These problems may hinder the
portion of firm growth that is financed by external capital providers known to
play a monitoring role. Using various measures of firms’ excessive growth and
international diversification, we show that external capital providers do not
view the international expansion of operations as value-enhancing activities.
We also find that efforts of corporate governance (e.g., through higher levels
of corporate governance and the disclosure of segment earnings) can be an
effective strategy to alleviate external capital providers’ concerns and
achieve higher growth rates through the expansion of international operations.