Diversification's effect and manager experience on investment efficiency

Hsiao-Fen  Hsiao; Jinguan  Tang; Conghua Wen

doi:10.1016/j.eap.2024.01.009

Diversification's effect and manager experience on investment efficiency

Hsiao-Fen Hsiao
, Jinguan Tang^*
, Conghua Wen

^*Corresponding author for this work

Department of Financial and Actuarial Mathematics

Newhuadu Business School of Minjiang University

Research output: Contribution to journal › Article › peer-review

4 Citations (Scopus)

Abstract

This paper discusses whether diversification is the optimal business strategy for a firm and whether diversification leads to efficient fund allocation. The analysis reveals that bad divisions in diversified firms exhibits over-investment with higher investment levels than ineffective specialized firms. Meanwhile, good divisions of diversified firms shows lower investment levels than effective specialized firms.

This paper further analyzes three types of managers according to their time preferences, namely time-consistent exponential, less-experienced, and sophisticated managers. Their views on diversification and its effect on the investment efficiency are studied.

Original language	English
Pages (from-to)	890-900
Number of pages	11
Journal	Economic Analysis and Policy
Volume	81
DOIs	https://doi.org/10.1016/j.eap.2024.01.009
Publication status	Published - Mar 2024

Keywords

Diversification
Fund allocation
Manager experience
Overinvestment
Underinvestment

Access to Document

10.1016/j.eap.2024.01.009

Cite this

@article{566aa5a313bc4f6b8b4473e837405035,

title = "Diversification's effect and manager experience on investment efficiency",

abstract = "This paper discusses whether diversification is the optimal business strategy for a firm and whether diversification leads to efficient fund allocation. The analysis reveals that bad divisions in diversified firms exhibits over-investment with higher investment levels than ineffective specialized firms. Meanwhile, good divisions of diversified firms shows lower investment levels than effective specialized firms. This paper further analyzes three types of managers according to their time preferences, namely time-consistent exponential, less-experienced, and sophisticated managers. Their views on diversification and its effect on the investment efficiency are studied.",

keywords = "Diversification, Fund allocation, Manager experience, Overinvestment, Underinvestment",

author = "Hsiao-Fen Hsiao and Jinguan Tang and Conghua Wen",

note = "Publisher Copyright: {\textcopyright} 2024 Economic Society of Australia, Queensland",

year = "2024",

month = mar,

doi = "10.1016/j.eap.2024.01.009",

language = "English",

volume = "81",

pages = "890--900",

journal = "Economic Analysis and Policy",

issn = "0313-5926",

}

TY - JOUR

T1 - Diversification's effect and manager experience on investment efficiency

AU - Hsiao, Hsiao-Fen

AU - Tang, Jinguan

AU - Wen, Conghua

PY - 2024/3

Y1 - 2024/3

N2 - This paper discusses whether diversification is the optimal business strategy for a firm and whether diversification leads to efficient fund allocation. The analysis reveals that bad divisions in diversified firms exhibits over-investment with higher investment levels than ineffective specialized firms. Meanwhile, good divisions of diversified firms shows lower investment levels than effective specialized firms. This paper further analyzes three types of managers according to their time preferences, namely time-consistent exponential, less-experienced, and sophisticated managers. Their views on diversification and its effect on the investment efficiency are studied.

AB - This paper discusses whether diversification is the optimal business strategy for a firm and whether diversification leads to efficient fund allocation. The analysis reveals that bad divisions in diversified firms exhibits over-investment with higher investment levels than ineffective specialized firms. Meanwhile, good divisions of diversified firms shows lower investment levels than effective specialized firms. This paper further analyzes three types of managers according to their time preferences, namely time-consistent exponential, less-experienced, and sophisticated managers. Their views on diversification and its effect on the investment efficiency are studied.

KW - Diversification

KW - Fund allocation

KW - Manager experience

KW - Overinvestment

KW - Underinvestment

UR - https://www.scopus.com/pages/publications/85185181842

U2 - 10.1016/j.eap.2024.01.009

DO - 10.1016/j.eap.2024.01.009

M3 - Article

SN - 0313-5926

VL - 81

SP - 890

EP - 900

JO - Economic Analysis and Policy

JF - Economic Analysis and Policy

ER -

Diversification's effect and manager experience on investment efficiency

Abstract

Keywords

Access to Document

Other files and links

Fingerprint

Cite this