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Corporate diversification and interest rate shocks
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Resumo(s)
This paper explores how the diversification value varies with the financial constraints originated
by interest rate shocks, finding that diversification can be used to hedge against them in the
short run. Diversification has become increasingly relevant since the 2000s, as firms’ short term debt increased, exposing themselves to rollover and debt-overhang risks. However,
aimlessly engaging in diversification for this purpose is not efficient, as when diversification
intensity rises, companies lose the edge provided to combat these shocks. Although this
protection is not dependent on the diversification type, related diversification has become more
efficient for this aim in the short and medium terms.
Descrição
Palavras-chave
Corporate finance Corporate diversification Diversification discount Monetary policy Interest rate shocks