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Diversification, capital structure, and performance: A simultaneous equation approach

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  • Sameh Jouida
  • Slaheddine Hellara

Abstract

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.

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  • Sameh Jouida & Slaheddine Hellara, 2018. "Diversification, capital structure, and performance: A simultaneous equation approach," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 39(2), pages 117-130, March.
    • Handle: RePEc:wly:mgtdec:v:39:y:2018:i:2:p:117-130
    DOI: 10.1002/mde.2874
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    Cited by:

    1. Ta-Cheng Chang & John Darcy & Yu-Ting Hou & Yun-Chia Yan, 2022. "Degree of Internationalization, Financial Structure and Cost of Capital: Evidence from Emerging Taiwan," Accounting and Finance Research, Sciedu Press, vol. 11(4), pages 1-23, November.

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