The Influence of Corporate Diversification on Investment Efficiency with an Emphasis on Agency Costs

Shahram Hatami, Saeid Anvar Khatibi


The objective of this research is to investigate the influence of corporate diversification on investment efficiency with an emphasis on agency costs, for the companies that are listed on Tehran Stock Exchange. In this vain, 110 companies were selected for the period between 2014 and 2019. This is applied and after-the-fact research. The mixed data approach and statistical software “Eviews” were used in order to test the research hypotheses. Results showed that there is a significant and negative relationship between corporate diversification and investment efficiency. In other words, an increase in corporate diversification will lead to increased deviation from optimal investment and decreased investment efficiency. Moreover, results showed that agency costs affect the relationship between corporate diversification and investment efficiency. In fact, there is a negative relationship between corporate diversification and investment efficiency in companies with agency costs. Hence, agency costs intensify the negative relationship between corporate diversification and investment efficiency.


Corporate Diversification; Investment Efficiency; Agency Costs

Full Text:



Benlemlih, M. and M. Bitar. (2018). “Corporate Social Responsibility and Investment Efficiency”, Journal of Business Ethics, 148 (3): 647-671.

Biddle, G. C., G. Hilary, and R. S. Verdi. (2009). How does financial reporting quality relate to investment efficiency? Journal of accounting and economics 48 (2):112-131.

Buchner, A., Mohamed, A., Schwienbacher, A. (2017). Diversification, risk, and returns in venture capital. Journal of Business Venturing, 32(5), 519-535.

Chen, C., D. Young, and Z. Zhuang. (2013). Externalities of Mandatory IFRS Adoption: Evidence from Cross-Border Spillover Effects of Financial Information on Investment Efficiency. The Accounting Review 88 (3):881-914.

Chen, J. Dong, W. Tong, J.Y. Zhang, F.F. (2018). Corporate philanthropy and investment efficiency: Empirical evidence from China, Pacific-Basin Finance Journal, 51 (October): 392-409.

Cheung, Y., Stouraitis, A., and Tan, W. (2011). Corporate governance, investment, and firm valuation in Asian emerging markets. Journal of International Financial Management & Accounting, 22 (3): 246-273.

Fakhari, H. Rezaei Pitenoei, Y. Noroozi, M. (2017). Corporate Social Responsibility Disclosure and Investment Efficiency, Journal of Financial Management Strategy, 4 (4): 85-106. (In Persian)

Fakhari, Hussein. Rezaei Pita Noei, Yaser. Norouzi, Mohammad. (2016). The Impact of Corporate Social Responsibility Disclosure on Investment Efficiency. Financial Management Strategy, 4 (4): 106-85.

Farooqi, J., Harris, O., Ngo, T. (2014). Corporate diversification, real activities manipulation, and firm value. Journal of Multinational Financial Management, 28, 130-151.

Hajiha, Z., Saeed, E. (2014). Investigation of relationship between corporate diversification and information asymmetry. Journal of Financial Management Strategy, 2(6), 114-95 [In Persian].

Hassanzadeh Brothers, Rasool. Taghizadeh Khaneghah, Vahid. (2017). The Impact of Corporate Diversification Strategy on the Risk of Stock Price Fall with Emphasis on Agency Costs, Accounting Knowledge, 9 (1): 90-63.

Jensen, M.C., Meckling, W.H. (1976). Theory of the firm: managerial behaviour, agency cost and ownership structure. Journal of Financial Economics, 3(4), 305-360.

Jiraporn, P., Kim, Y.S., Mathur, I. (2008). Does corporate diversification exacerbate or mitigate earnings management? An empirical analysis. International Review of Financial Analysis, 17(5), 1087-1109.

Jouida, S. (2017). Diversification, capital structure and profitability: A panel VAR approach. Research in International Business and Finance, in press, corrected proof, Available online 8 July 2017.

Khodarahmi, B., Foroughnejad, H., Sharifi, M.J., Talebi, A. (2016). The impact of information asymmetry on the future stock price crash risk of listed companies in the Tehran Stock Exchange. Asset Management & Financing, 4(3), 39-58 [In Persian].

Khodarahmi, Behrooz. Foroughnejad, Haidar. Sharifi, Mohammad Javad Talebi, Alireza. (2017). The effect of information asymmetry on the risk of future stock price falls of companies listed on the Tehran Stock Exchange, Asset Management and Financing, 4 (3): 39-58.

Lin, C., Su, D. (2008). Industrial diversification, partial privatization and firm valuation: Evidence from publicly listed firms in China. Journal of Corporate Finance, 14(4), 405-417.

Masud, M.H., Anees, F., Ahmed, H. (2017). Impact of corporate diversification on earnings management. Journal of Indian Business Research, 9(2), 1-26.

Matsusaka, J.G. (2001). Corporate diversification, value maximization, and organizational capabilities. Journal of Business, 74(3), 409-431.

Mehdi, I., K.H.E., Seboui, S. (2011). Corporate diversification and earnings management. Review of Accounting and Finance, 10(2), 176-196.

Montgomery, C.A. (1994). Corporate diversification. Journal of Economic Perspectives, 8(3), 163-178.

Phung, D.N., Mishra, A.V. (2016). Corporation diversification and firm performance: Evidence from Vietnamese listed firms. Australian Economic Papers, 55(4), 386-408.

Sun, J., Yuan, R., Cao, F., Wang, B. (2017) Principal-principal agency problems and stock price crash risk: Evidence from the split-share structure reform in China. Corporate Governance: An International Review, DOI: 10.1111/corg.12202.

Taghizadeh Khaneghah, Vahid. Zeinali, Mehdi. (2016). Investigating the Impact of Corporate Social Responsibility on Investment Efficiency and Innovation, Health Accounting, 5 (2): 27-2.



  • There are currently no refbacks.

Copyright (c) 2022 International Journal of Multicultural and Multireligious Understanding

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

International Journal of Multicultural and Multireligious Understanding (IJMMU) ISSN 2364-5369
Copyright © 2014-2018 IJMMU. All rights reserved.