THE ASSOCIATION BETWEEN CORPORATE GOVERNANCE AND PRODUCT DIVERSIFICATION IN BRAZILIAN FIRMS: AN EMPIRICAL STUDY

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Abstract

In this paper we examine the association between product diversification and corporate governance. We add to the pool of current knowledge in three ways. First, we include the effects of strategy on diversification in our model. Second, we eliminate observations that have both good corporate governance and unchanging, high diversification that Anderson et al (2000) attribute to a confounding theory. Third, we use Brazilian data. Using Brazilian companies allows us to see the corporate governance norms, diversification norms, and the existence of a diversification discount in a developing market. We find that there is a positive association between the strength of corporate governance and a company’s level of diversification. We also find that the level of corporate governance significantly affects whether a company is highly diversified. Finally, we find that there is a diversification discount for Brazilian companies. However, after controlling for the effect of corporate governance on diversification, we find that highly diversified firms do not have a significantly different Tobin’s Q.

Keywords: Corporate Governance, Brazil, Product Diversification

How to cite this paper: Mendes-da-Silva, W., Black, E. L., & Mallett, J. S. (2008). The association between corporate governance and product diversification in Brazilian firms: an empirical study. Corporate Ownership & Control, 5(2-3), 367-378. https://doi.org/10.22495/cocv5i2c3p6