The impact of different corporate diversification strategies on the cost of capital : an empirical study on selected publicly-listed firms in the Philippine Stock Exchange

• Main Authors: Chan, Marvin Joshua B., Cruz, Marian Krisandra R., Dela Cruz, ,Alyanna Marie O., Xu, Joyce Shedelyn G.
• Format: text
• Language: English
• Published: Animo Repository 2015
• Subjects: Capita > Philippines; Corporations > Philippines; Accounting
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/5714
• Institution: De La Salle University

Every company requires funds for its operations or expansion plans. They can obtain these funds by borrowing debt, issuing shares or through retained earnings. Managers consider different factors to achieve their desired cost of capital and with the increase trend in diversification this study primarily attempts to answer the question: What is the impact of different corporate diversification strategies, specifically concentric, conglomerate or a combination of both, on the cost of capital of selected publicly-listed companies in the Philippine Stock Exchange. The research design of the study is causal-comparative and correlational which would evaluate the relationship and impact between its independent variables, that is, concentric diversification, and conglomerate diversification, its dependent variable, the cost of capital, and its component, the cost of debt and cost of equity. The researchers utilized proportionate stratified random sampling for this study and came up with 148 samples from all publicly listed firms in the Philippine Stock Exchange. The main finding of this study shows that the different corporate diversification strategies have different impacts to cost of capital where: (1) Conglomerate diversification has a decreasing effect on cost of capital (2) Concentric diversification has an increasing effect on cost of capital (3) A combination of both diversification strategies has an increasing effect on cost of capital. However, after considering the sectors in which the firms are under, the impact varied among the industries. Extraneous variables are also applied to determine how other external factors would affect the dependent variable, either directly or through the independent variable. Lastly, it is recommended that future researchers dwell on specific industries as to obtain more specific explanations and to also consider the aspect of time. Other diversification strategies besides the ones utilized in the study could also be researched for further information.