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  • 2012 Fall: Volume 10, Issue 2
  • The Impact of International and Industrial Diversification Strategies on Firms' Overinvestment of Free Cash Flow

    • Mussie Teclezion

    Title:

    The Impact of International and Industrial Diversification Strategies on Firms' Overinvestment of Free Cash Flow

    Author(s):

    Mussie Teclezion

    Publication Date:

    2012

    Journal Title:

    The Journal of Finance Issues

    Volume Number:

    10

    Issue Number:

    2

    Abstract:

    We examine the quarterly data of Compustat’s all active and research firms from the first quarter of 1999 to the fourth quarter of 2005. Using a dataset that includes more than 79,000 firm quarters, we look at the impact of diversification on the firms' tendency to over-invest their free cash flow. Our fixed-effects regressions show positive and significant effect of the interaction between industrial diversification and free cash flow on the degree of over-investment. That is, firms tend to over-invest their free cash flow as they become more industrially diversified.

    First Page:

    140

    Last Page:

    152

    Total Pages:

    12