Corporate diversification, investment efficiency and the business cycle

I document the time-varying investment efficiency of conglomerates compared with single-segment firms. find that, during recessions, have higher Q-sensitivity than do stand-alone firms, in contrast to relationship expansion periods. also that conglomerates, benefits from internal capital markets, exhibit increased dependence on recessionary periods, while firms significantly increase cash retention and deviate their its optimal level more severely. examine effect degree diversification consistent evidence deployment capital. provide stronger governance not improve recession, which suggests agency costs cannot fully explain changes conglomerates.