The Dynamics of Diversification Discount PDF Download
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Author: Seoungpil Ahn
Publisher:
ISBN:
Category :
Languages : en
Pages : 43
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Book Description
Using a sample of diversified firms over the period of 1980-2003, I investigate changes in the diversification discount over the two decades. The time-series pattern of the diversification discount is created by the entrance and exit of discount firms. I find that the distribution of excess value can correctly predict the survivalship of a diversified firm. Discount firms are more likely to reverse their diversification within short time period. By contrast, the survival of diversification strategies among premium firms and focused firms is unrelated to their excess values. After accounting for value effects, premium firms perform better than focused firms and discount firms. I interpret the results as evidence that excess value can correctly identify these firms that are successful and unsuccessful in their diversification.
Author: Seoungpil Ahn
Publisher:
ISBN:
Category :
Languages : en
Pages : 43
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Book Description
Using a sample of diversified firms over the period of 1980-2003, I investigate changes in the diversification discount over the two decades. The time-series pattern of the diversification discount is created by the entrance and exit of discount firms. I find that the distribution of excess value can correctly predict the survivalship of a diversified firm. Discount firms are more likely to reverse their diversification within short time period. By contrast, the survival of diversification strategies among premium firms and focused firms is unrelated to their excess values. After accounting for value effects, premium firms perform better than focused firms and discount firms. I interpret the results as evidence that excess value can correctly identify these firms that are successful and unsuccessful in their diversification.
Author: Matthias Knecht
Publisher: Springer Science & Business Media
ISBN: 3658026774
Category : Business & Economics
Languages : en
Pages : 365
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Book Description
The decision to diversify lies at the core of corporate strategy and is one of the most important decisions for top management. Matthias Knecht introduces a new perspective on corporate diversification that extends the academic discussion and reveals substantial new insights with regards to one of the most pressing questions in strategic management: what makes a diversification strategy successful? The author introduces the dynamism of industries as the dominant force in the firm’s environment that influences the organization on all levels. Due to strategic, organizational, and managerial similarities of businesses competing in similar dynamic environments, synergistic benefits and superior economic performance can be realized through the combination of dynamic-related businesses in the corporate portfolio. This study provides a quantitative, multidimensional operationalization of industry dynamism and an in-depth assessment of the dynamism of a wide range of industries. At the core of the study lies the investigation of the performance impact of dynamic-related diversification strategies. The results provide new insights into successful portfolio construction strategies in the face of today’s dynamic environments.
Author: Yuri Khoroshilov
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
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Book Description
Empirical studies show that a large portion of the diversification discount can be explained by controlling for firm-specific characteristics. Although these studies leave no doubt that there is a self-selection component in firm's decision to diversify, the failure to explain the entire discount implies that some conglomerates destroy value and raises a question: why firms choose to diversify and what prevent them from value-increasing divestitures. This paper provides an answer to this question. It argues that the agency cost in a conglomerate is positively related to the number of divisions with good investment opportunities. Therefore, benefits of conglomeration offset agency costs for conglomerates with a number of bad divisions and make diversification profitable for bad firms. However, when investment opportunities of some divisions improve, the agency cost increases and offsets the benefits of diversification. Unfortunately, if investors cannot correctly price all of the conglomerate's divisions, the conglomerate cannot receive the fair price for its good divisions and, therefore, cannot implement value-increasing divestitures. As a result, the paper predicts a negative relationship between the age of the conglomerate and the diversification discount, while a failure to control for the self-selection bias may lead to an incorrect conclusion that this relationship is positive. By looking at the exogenous shocks to the economy, the paper also predicts more refocusing activities and greater value-distortion of diversification during economic booms.
Author: Raghuram Rajan
Publisher:
ISBN:
Category :
Languages : en
Pages : 50
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Book Description
Author: José Manuel Campa
Publisher:
ISBN:
Category :
Languages : en
Pages : 50
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Book Description
Diversified firms trade at a discount relatively to similar single-segment firms. We argue in this paper that this observed discount is not per se evidence that diversification destroys value. Firms choose to diversify. Firm characteristics, which make firms diversify, might also causethem to be discounted. Not taking into account these firm characteristics might wrongly attribute the observed discount to diversification. Data from the Compustat Industry Segment File from 1978 to 1996 is used to select a sample of single segment and diversifying firms. We use three alternative econometric techniques to control for the endogeneity of the diversification decision.All three methods suggest the presence of self-selection in the decision to diversify and that a negative correlation exists between firm's choice to diversify and firm value. We do a similar analysis in a sample of refocusing firms. Again, some evidence of self-selection by firms exists and we now find a positive correlation between firm's choice to refocus and firm value. Theseresults consistently suggest the importance of taking the endogeneity of the diversification status into account in analyzing its effect on firm value.
Author: Z. Griliches
Publisher: North Holland
ISBN:
Category : Business & Economics
Languages : en
Pages : 722
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Book Description
V.l: Mathematical and statistical methods in econometrics; Econometric models; Estimation and computation; v.2: Testing; Time series topics; Special topics in econometrics; v.3: Special topics in econometrics; Selected applications and uses of econometrics.
Author: Daniel Hoechle
Publisher:
ISBN:
Category :
Languages : en
Pages : 52
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Book Description
We investigate whether the diversification discount occurs partly as an artifact of poor corporate governance. In panel data models, we find that the discount narrows by 16% to 21% when we add governance variables as regression controls. We also estimate Heckman selection models that account for the endogeneity of diversification and dynamic panel generalized method of moments models that account for the endogeneity of both diversification and governance. We find that the diversification discount persists even with these controls for endogeneity. However, in selection models the discount disappears entirely when we introduce governance variables in the second stage, and in dynamic panel GMM models the discount narrows by 37% when we include governance variables.
Author: Nilanjan Basu
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Author: João Gomes
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 40
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Book Description
Author: Belen Villalonga
Publisher:
ISBN:
Category :
Languages : en
Pages : 42
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Book Description
This paper examines whether the discount of diversified firms can actually be attributed to diversification itself, using recent econometric developments about causal inference with non-experimental data. The effect of diversification on firm value is unbiasedly estimated by matching diversified and single-segment firms on the propensity score??the predicted values from a probit model of a firm?s propensity to diversify. I apply this method on a sample of diversified firms that trade at a significant mean and median discount relative to single-segment firms of similar size and industry. I find that, when a more comparable benchmark based on the propensity score is used, the diversification discount as such disappears. Therefore, I find no reason to interpret the finding that diversified firms trade at a discount as evidence that diversification destroys value. In fact, my analysis of the propensity to diversify yields support to both value-creating and value-destroying arguments for diversification. I find that diversified firms trade at a significant industry-adjusted discount prior to diversification, which however does not seem to result from their future diversification. In addition, diversifying firms are present in industries with a lower q than those of their non-diversifying counterparts. I also find that, as predicted by agency theory, diversified firms prior to diversifying have a smaller percentage of their stock owned by institutions, insiders, and blockholders, a higher risk, and are likely to diversify into industries with a lower average leverage than their own. I find support for the resource-based theory of diversification as well in that firms are more likely to diversify when faced with opportunities for exploiting potential synergies and when they have enough financial resources to do so. As required for market power-based theories of diversification to hold, firms that diversify are present in industries with higher levels of concentration. More generally, certain industries appear to lend themselves more than others to either inward or outward diversification.
