Product diversification and capital structure: A case of industrial firms listed in the Philippine Stock Exchange (2003-2012)

• Main Authors: Carreon, Justin Leandro S., Chua, Edric Regan U., Monreal, Pauline Naomi O., Nerona, Ingrid Maria P.
• Format: text
• Language: English
• Published: Animo Repository 2014
• Subjects: Financial institutions > Management; Diversification in industry > Philippines
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/7682
• Institution: De La Salle University

In analyzing factors influencing capital structure, this paper primarily aims to determine the relationship of product diversification, both related and unrelated strategies, on the financial decisions using a panel data analysis for a sample including 38 publicly listed industrial firms in the Philippines during the period 2003-2012. The findings have implicated that effect on leverage may vary according to the degree of product diversification. Specifically, a related diversification strategy is associated with higher debt usage, while unrelated diversification strategy has insignificant relationship with corporate leverage. The slow adjustment speed towards the target debt level among sample firms implies the presence of high transaction and adjustment costs that could have hindered the utilization of the greater debt capacity which may have been created from diversification, as explained by the coinsurance theory.