Corporate structure and equity offerings: Are there benefits to diversification?

We examine the effect of corporate diversification on the equity-issue proc ess in a sample of 641 equity issues from 1983 to 1994. We find that issues by diversified firms are viewed less negatively by the market than are iss ues by focused firms. This finding supports the hypothesis that diversifica tion helps alleviate asymmetric information problems. Our results appear in consistent with the hypothesis that reduced transparency exacerbates asymme tric information problems for diversified firms. The results also appear in consistent with the hypothesis that the market anticipates that the funds a n raised from equity issues by diversified firms will be invested in partic ularly poor projects.