Linking corporate strategy to capital structure: Diversification strategy, type and source of financing

  • Kochhar R
  • Hitt M
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Abstract

This study examines the relationship between corporate strategy and capital structure, specifically the diversification and financing strategies of a firm. The results show that equity financing is preferred for related diversification and unrelated diversification is associated with debt financing. Additionally, firms diversifying through acquisitions are more likely to use public sources of financing and those emphasizing internal development of new businesses depend primarily on private sources of financing. Using simultaneous equation estimation, we found a reciprocal relationship between a firm's financial strategy and its corporate diversification strategy. Mode and nature of diversification are also reciprocally interrelated. ABSTRACT FROM AUTHOR]; Copyright of Strategic Management Journal is the property of John Wiley & Sons, Inc. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Author-supplied keywords

  • Capital structure
  • Mode of entry
  • Public/private financing
  • Related/unrelated diversification
  • Simultaneous equation modeling

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