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Papers received as of Wed Dec 22 11:15:54 CST 1999.
(To retrieve abstracts without full papers, use e.g.    get 9912001.abs )
 get 3 2.abs 9303001  , e.g., returns multiple papers.

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Paper: ewp-fin/9912001
From: bagdon@haas.berkeley.edu
Date: Wed, 16 Feb 2000 12:10:08 -0800

Title: Corporate Diversification and Agency
Author: Benjamin E. Hermalin (University of California, Berkeley) and Michael
L. Katz (University of California, Berkeley)  
Contact:  hermalin@haas.berkeley.edu 
Comments: 37 pages Adobe.pdf
JEL:  G 
EWP References:  none
Report-no:  UCB Economics UCBE00-272
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Abstract: Firms undertake a variety of actions to reduce risk through
diversification, including entering diverse lines of business, taking on
project partners, and maintaining portfolios of risky projects such as
R&D or natural resource exploration. By a well-known argument,
securities holders do not directly benefit from risk-reducing corporate
diversification when they can replicate this diversification on their
own. Moreover, shareholders should be risk neutral with respect to the
unsystematic risk that is associated with many research projects. Some
have argued that corporate risk reduction may be of value, or can
otherwise be explained by, the agency relationship between securities
holders and managers. We argue that the value of diversification
strategies in an agency relationship derives not from its effects on
risk, but rather from its effects on the principal's information about
the agent's actions. We demonstrate by example that diversification
activities may increase or decrease the principal's information,
depending on the particular structure of the activity.
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