Premium
Multidivisional structure and capital structure: The contingency of diversification strategy
Author(s) -
RiahiBelkaoui Ahmed,
Bannister James W.
Publication year - 1994
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.4090150308
Subject(s) - capital structure , diversification (marketing strategy) , free cash flow , restructuring , transaction cost , debt , opportunism , cash flow , organizational structure , business , economics , microeconomics , equity (law) , financial economics , industrial organization , monetary economics , finance , market economy , management , marketing , political science , law
This study examines the relationship between the implementation of the multidivisional (M‐form) organizational structure, capital structure and diversification strategy. Findings indicate that implementation of the M‐form structure from a hierarchical (U‐form) structure is associated with a general increase in the long‐term debt‐to‐equity ratio for all firms, a result that supports a free‐cash‐flow argument for the use of debt in restructuring to reduce the opportunism of management. Further, as implied by arguments from transaction cost economics, the debt‐to‐equity ration differs for different types of diversification strategy.