Investigation of Relationship between Corporate Diversification and Information Asymmetry

Diversification is a form of corporate strategy that many managers use it to improve performance of their companies. Companies are different from each other in terms of their activities and geographic diversity. The aim of this study was to determine whether the corporate diversification has a positive relationship with information asymmetry or not. In this study, commercial and geographical diversifications were used for measuring corporate diversification (according to Iranian Accounting Standard, No. 25). Corporate diversification was considered as an independent variable and information asymmetry was chosen as a dependent variable. In order to test the hypotheses, 86 companies listed on Tehran Stock Exchange during 2007 to 2012 were selected. Panel data regression was used to analyze models and the best model was estimated between models with fixed or random effects. The results of this study suggest that there is a significant positive relationship between corporate diversification and asymmetric information, whereas commercial diversification has more intense relationship with information asymmetry (between commercial and geographical diversifications).