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Financial Services Industry

Corporate Governance and Firm Diversification

Financial Management (Financial Management Association), Spring, 2000 by Ronald C. Anderson, Thomas W. Bates, John M. Bizjak, Michael L. Lemmon

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OLS Regressions Comparing Corporate Governance Characteristics in Single- and Multi-Segment Firms

Dependent variables include the fractional equity ownership of the CEO (models 1 and 2), the fractional equity ownership of officers and directors (model 3), and the fraction of equity-based pay (model 4). Independent variables include a dummy variable equal to one for multi-segment firms, a dummy for regulated firms (the regulation dummy equals 1.0 if the firm is in SIC codes 6022-6026 and 6312-6332), firm size, normalized R&D expenditures, and CEO tenure. Segment data come from the Compustat Industry Segment database. Ownership and compensation data come from corporate proxy statements. The sample consists of 1,851 firm-year observations from 199 firms for the years 1985-1994. The coefficient estimates and p-values are calculated from Fama-MacBeth cross-sectional regressions (p-values in parentheses).

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Comparisons of Ownership and Governance Characteristics between Firms which Increase and Reduce Focus over the Sample Period

In Panel A, a change in focus is classified as any permanent revision in the number of reported business segments. For Panel A, the sample consists of 85 firms that experienced a sustained increase or decrease in the number of reported segments between 1986 and 1994, and 114 firms that experienced no change in the number of reported business segments over this time period. In Panel B, a change in focus is any permanent movement between single and multiple segments. For Panel B, the sample consists of 22 firms that experienced a sustained change between single and multiple segments between 1986 and 1993, and 59 firms that experienced no change in the number of reported business segments over this time period. Segment data come from the Compustat Industry Segment database. Ownership and compensation data come from corporate proxy statements. Means for the groups that change diversification are evaluated against the means of firms that did not change their level of diversification, Mean differences are evaluated using a t-statistic from an Anova test and p-values based on these difference tests are reported in parentheses. Tests of medians yield identical inferences.

OLS Regressions of Excess Value on Measures of Corporate Governance in Single-Segment and Multi-Segment Firms

The dependent variable in each model is a measure of excess value. Excess value is measured using Berger and Ofek's (1995) method for calculating the imputed value of each segment using a sales revenue multiplier. Independent variables include firm size, the firm's prior year accounting performance, a dummy equal to one for multi-segment firms, fractional equity ownership of the CEO, the fraction of equity based pay, the fraction of outside directors, a dummy equal to one if the fraction of outside directors is greater than 50%, and each of the governance variables interacted with the multi-segment dummy. The interaction terms measure the marginal effect of each of the governance characteristics on excess value in a multi-segment firm. Segment data come from the Compustat Industry Segment database. Ownership and compensation data come from corporate proxy statements. The sample consists of 1,748 firm-year observations for 199 firms from 1985-1994. The coefficient estimates and p-values are calculated from Fam a-MacBeth cross-sectional regressions (p-values in parentheses).

Financial Services Industry

Corporate Governance and Firm Diversification

Financial Management (Financial Management Association), Spring, 2000 by Ronald C. Anderson, Thomas W. Bates, John M. Bizjak, Michael L. Lemmon

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