The relationship between capital allocation efficiency and diversification strategy from the perspective of internal control

The relationship between capital allocation efficiency and diversification strategy from the perspective of internal control

Subject Areas : Management Accounting

seyed abass borhani ^{1 *} , mojgan safa ² , Mobin Janmohammadi, ³

1 - Assistant Professor, Department of Accounting, Qom branch, Islamic Azad University. Qom, Iran. (Corresponding Author)
2 - Assistant Professor, Department of Accounting, Qom branch, Islamic Azad University. Qom, Iran
3 - Master of Accounting, Department of Accounting, Qom Branch, Islamic Azad University, Qom, Iran.

Received: 2024-07-30 Accepted : 2024-11-16 Published : 2025-10-05

Keywords: Capital allocation efficiency, diversification, internal control, Free cash flow, Corporate Governance.,

Abstract :

iversification is a form of corporate strategy for companies that some managers use to improve their company's performance. Many studies in the field of organizational strategy and financial behavior have shown that the motivation for diversification originates from the internal and external environments faced by companies. To create a regional economy, companies try to enter related industries, which is a low-cost effort. This study examines the relationship between capital allocation efficiency and diversification strategy from the perspective of internal control. The method of this research is correlational in terms of content and nature. From the data of Tehran Stock Exchange companies from ۲۰۱۳ to ۲۰۲۱ which were prepared as panel data; And ordinary square regression with the effects of year and industry has been used to test the hypotheses. This is a quantitative, descriptive, experimental, library and field study. The results of data analysis showed that the quality of internal control has a positive effect on the efficiency of capital allocation, And the efficiency of capital allocation has a negative effect on the implementation of diversification. Also, weak internal control has a positive and significant effect on the implementation of diversification; And when the level of free cash flow is high, the effect of convergence of management interests increases the possibility of implementing diversification. This study provides tips for deep analysis of the relationship between capital allocation efficiency, free cash flow level, internal control governance and diversification strategy in Iran's sanctioned economy

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