Publication Type
Journal Article
Version
acceptedVersion
Publication Date
7-2013
Abstract
Extant theories agree that debt should inhibit diversification, but predict opposing performance consequences. While agency theory predicts that debt should lead to higher performance for diversifying firms, transaction cost economics (TCE) predicts that more debt will lead to lower performance for firms expanding into new markets. Our empirical tests on a large sample of Japanese firms support TCE by showing that firms accrue higher returns from leveraging their resources and capabilities into new markets when managers are shielded from the rigors of the market governance of debt, particularly bond debt. Furthermore, we find that the detrimental effects of debt are exacerbated for R&D intensive firms, and that debt is not necessarily harmful to firms that are either contracting or managing a stable portfolio of markets.
Keywords
Transaction cost economics, diversification, capital structure, RBV, Agency Theory
Discipline
Corporate Finance | Strategic Management Policy
Research Areas
Strategy and Organisation
Publication
Strategic Management Journal
Volume
35
Issue
7
First Page
1013
Last Page
1031
ISSN
1097-0266
Identifier
10.1002/smj.2144
Publisher
Wiley
Citation
O'Brien, Jonathan; DAVID, Parthiban; YOSHIKAWA, Toru; and Delios, Andrew.
How Capital Structure Influences Diversification Performance: A Transaction Cost Perspective. (2013). Strategic Management Journal. 35, (7), 1013-1031.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/4594
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1002/smj.2144