Ownership Structure, Board Characteristics, and Firm Diversification: Evidence from an Emerging Country

Abstract

: Purpose: The purpose of this paper is to argue the effect of ownership structure and board of directors on firm diversification . Design/Methodology/Approach: The data is gathered via a questionnaire administered to 111 managers from Tunisian in small-and medium-sized companies. To analyze collected data we used SPSS and Amos graphics software. Hypotheses were tested using the regression analysis technique. The study gives empirical information on the relationship between cognitive variables and strategic decision-making, specifically diversification. Findings: The findings reached following the logistic regression prove to reveal well that companies whose executives a certain capital share do not count as actually diversified firms. Thus, the assumption stipulating that the directors’ shareholding is negatively associated with diversification seems verified. Still, the results attained prove to demonstrate that family structure is negatively related to diversification policy. In addition, company size and leverage appear to not affect diversification decisions. Yet, performance turns out to have a positive and significant relationship with such a decision. Research implications : Although the Tunisian corporate governance reform concerning the independent director system which is mandatory only for newly-listed companies is successful, the regulatory authority should require all listed companies to appoint independent directors to further enhance the Tunisian corporate governance. Future research could include other proxies of corporate governance and ownership structure such as board diversity and meetings, audit committee and managerial ownership, etc. Originality/Value: First, unlike most of the previous literature on emergent countries, this study examines the effects of corporate governance mechanisms on firm diversification in Tunisia. Second, while several studies used a single indicator of firm diversification, this study examines both accounting-based and market-based firm diversification. Third, this study addresses the endogeneity issue between corporate governance factors and firm diversification, a strategic decision.