Author(s)

Mengyang Guo¹, Justin Yiqiang Jin¹, Mary Li Zhi Ma²

¹Accounting and Financial Management Services Area, DeGroote School of Business, McMaster University, Hamilton, Canada.
²School of Administrative Studies, York University, North York, Canada.

This study examines the relationship between international diversification and firms’ access to external capital to finance growth opportunities. We hypothesize that moral hazards, adverse selection, and home bias arise when firms expand across borders. These problems may hinder the portion of firm growth that is financed by external capital providers known to play a monitoring role. Using various measures of firms’ excessive growth and international diversification, we show that external capital providers do not view the international expansion of operations as value-enhancing activities. We also find that efforts of corporate governance (e.g., through higher levels of corporate governance and the disclosure of segment earnings) can be an effective strategy to alleviate external capital providers’ concerns and achieve higher growth rates through the expansion of international operations.

International Diversification, Segment Earnings Disclosure, Corporate Governance, Information Asymmetry

Guo, M. , Jin, J. and Ma, M. (2019) International Diversification, Excessive Growth, and Corporate Governance. Theoretical Economics Letters, 9, 2477-2507. doi: 10.4236/tel.2019.97157.