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Diversification, capital structure, and performance: A simultaneous equation approach
Author(s) -
Jouida Sameh,
Hellara Slaheddine
Publication year - 2018
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.2874
Subject(s) - diversification (marketing strategy) , leverage (statistics) , capital structure , econometrics , interdependence , economics , simultaneous equations model , ordinary least squares , debt , monetary economics , business , financial economics , industrial organization , finance , statistics , mathematics , marketing , political science , law
This paper examines the relationships between diversification, capital structure, and performance jointly on the financial sector. Our dataset covers 412 French financial institutions over the period ranging from 2002 to 2012. Furthermore, we use a three‐stage least squares to check reverse causality. Our three‐stage least squares results show positive significant simultaneous interdependencies between performance and leverage. Performance reduction and debt levels increase are associated with activity diversification. Performance and leverage reduction is due to geographic diversification. Our estimation confirms reverse association between the interaction of diversification, leverage, and performance. Moreover, the findings are robust after taking into account alternative measures of diversification.