| This dissertation consists of three essays. I investigate agency issues related to two important corporate decisions: Corporate diversification and risk management (i.e., hedging activities), which can be explained by agency theory (Jensen and Meckling, 1986). In a sense, corporate diversification and financial risk management can be viewed as important strategies that may serve to reduce a firm's overall risk.; In the first essay, I examine the economic effects of corporate diversification on firm value. First, this paper investigates the effects of both industrial and geographic diversification on a firm's value. Second, this paper attempts to reconcile the somewhat conflicting evidence on geographic diversification through better data delineation and the use of more appropriate econometric methods. Finally. I examine the effects of agency cost issues, as characterized by the diversification discount, on both industrial and geographic diversification by employing several agency-related variables.; In the second essay, I investigate the role of information asymmetry due to diversification in explaining the firm value discount. Using a merged sample of 13,061 firm year observations over the period 1990–1998, I show that the diversification discount can be explained by information asymmetry. In addition, this paper takes into account the effects of industrial and global diversification on the level of information asymmetry and on firm value.; In the third essay, I investigate the less explored but increasingly important issues of the relationship between operational hedging and financial hedging and the valuation effects of operational hedging activities. This paper examines whether operational hedging is a substitute or a complement to financial hedging. Also, this paper examines the effects of operational hedging and financial hedging on foreign exchange risk exposure. |
