Because the proprietary and agency cost motive hypotheses have opposite predictions
about the new and old segments’ abnormal profits, we partition our sample into two samples
such that one cost consideration is likely to dominate the other and we test each hypothesis
separately within each sample. Throughout the study, we refer to the set of firms for which
the agency cost motive is likely to dominate as the ‘‘AC motive sample’’ and to the set for
which the proprietary cost motive is likely to dominate as the ‘‘PC motive sample.’’ Then,
using a logit regression analysis, we test whether the new segments tend to have higher
(lower) abnormal segment profits than the old segments within the AC (PC) motive sample