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Diversification Discount (diversification + discount)
Selected AbstractsDiversification Discount or Premium?THE JOURNAL OF FINANCE, Issue 2 2004New Evidence from the Business Information Tracking Series ABSTRACT I use the Business Information Tracking Series (BITS), a new census database that covers the whole U.S. economy at the establishment level, to examine whether the finding of a diversification discount is an artifact of segment data. BITS data allow me to construct business units that are more consistently and objectively defined than segments, and thus more comparable across firms. Using these data on a sample that yields a discount according to segment data, I find a diversification premium. The premium is robust to variations in the sample, business unit definition, and measures of excess value and diversification. [source] Is It Inefficient Investment that Causes the Diversification Discount?THE JOURNAL OF FINANCE, Issue 5 2001Toni M. Whited Diversified conglomerates are valued less than matched portfolios of pure-play firms. Recent studies find that this diversification discount results from conglomerates' inefficient allocation of capital expenditures across divisions. Much of this work uses Tobin's q as a proxy for investment opportunities, therefore hypothesizing that q is a good proxy. This paper treats measurement error in q. Using a measurement-error consistent estimator on the sorts regressions in the literature, I find no evidence of inefficient allocation of investment. The results in the literature appear to be artifacts of measurement error and of the correlation between investment opportunities and liquidity. [source] The Dynamics of Diversification Discount,ASIA-PACIFIC JOURNAL OF FINANCIAL STUDIES, Issue 2 2009Seoungpil Ahn Abstract 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 the firms' 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. [source] Why Agency Costs Explain Diversification DiscountsREAL ESTATE ECONOMICS, Issue 1 2001Henrik Cronqvist We study diversificsation within the real estate industry because of its relative transparency: portfolio management of assets with well-defined market prices. Diversification is over property types and geographical regions. The major cause of the diversification discount is not diversification per se but anticipated costs due to rent dissipation in future diversifying acquisitions. Firms expected to pursue nonfocusing strategies do indeed diversify more, are valued ex ante at a 20% discount over firms anticipated to follow a focusing strategy, are predominantly privately controlled and use dual-class shares extensively. The ex ante diversification discount is, therefore, a measure of agency costs. [source] Diversification Discount or Premium?THE JOURNAL OF FINANCE, Issue 2 2004New Evidence from the Business Information Tracking Series ABSTRACT I use the Business Information Tracking Series (BITS), a new census database that covers the whole U.S. economy at the establishment level, to examine whether the finding of a diversification discount is an artifact of segment data. BITS data allow me to construct business units that are more consistently and objectively defined than segments, and thus more comparable across firms. Using these data on a sample that yields a discount according to segment data, I find a diversification premium. The premium is robust to variations in the sample, business unit definition, and measures of excess value and diversification. [source] Optimal Diversification: Reconciling Theory and EvidenceTHE JOURNAL OF FINANCE, Issue 2 2004Joao Gomes ABSTRACT In this paper we show that the main empirical findings about firm diversification and performance are consistent with the maximization of shareholder value. In our model, diversification allows a firm to explore better productive opportunities while taking advantage of synergies. By explicitly linking the diversification strategies of the firm to differences in size and productivity, our model provides a natural laboratory to investigate several aspects of the relationship between diversification and performance. Specifically, we show that our model can rationalize the evidence on the diversification discount (Lang and Stulz (1994)) and the documented relation between diversification and productivity (Schoar (2002)). [source] Divestitures and Divisional Investment PoliciesTHE JOURNAL OF FINANCE, Issue 6 2003Amy Dittmar ABSTRACT We study a sample of diversified firms that alter their organizational structure by divesting a business segment. These firms experience a reduction in the diversification discount after the divestiture. We show that the efficiency of segment investment increases substantially following the divestiture and that this improvement is associated with a decrease in the diversification discount. Our results support the corporate focus and financing hypotheses for corporate divestitures. We demonstrate that inefficient investment is partly responsible for the diversification discount and show that asset sales lead to an improvement in the efficiency of investment for remaining divisions. [source] Is It Inefficient Investment that Causes the Diversification Discount?THE JOURNAL OF FINANCE, Issue 5 2001Toni M. Whited Diversified conglomerates are valued less than matched portfolios of pure-play firms. Recent studies find that this diversification discount results from conglomerates' inefficient allocation of capital expenditures across divisions. Much of this work uses Tobin's q as a proxy for investment opportunities, therefore hypothesizing that q is a good proxy. This paper treats measurement error in q. Using a measurement-error consistent estimator on the sorts regressions in the literature, I find no evidence of inefficient allocation of investment. The results in the literature appear to be artifacts of measurement error and of the correlation between investment opportunities and liquidity. [source] DO TRACKING STOCKS REDUCE INFORMATION ASYMMETRIES?THE JOURNAL OF FINANCIAL RESEARCH, Issue 2 2005AN ANALYSIS OF LIQUIDITY AND ADVERSE SELECTION Abstract A firm's announcement that it intends to restructure based on tracking stock is usually associated with a positive stock price reaction, at least in the short run. Typically, this reaction is attributed to expected reductions in a diversification discount, through reduced agency costs or information asymmetries. We reinvestigate this latter hypothesis by focusing on the liquidity provided by market makers before and after a firm issues a tracking stock. Our results suggest that such restructurings are not effective at reducing information asymmetries. Rather, firms that issue tracking stocks exhibit less liquidity and greater adverse selection than comparable control firms. [source] The Dynamics of Diversification Discount,ASIA-PACIFIC JOURNAL OF FINANCIAL STUDIES, Issue 2 2009Seoungpil Ahn Abstract 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 the firms' 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. [source] | ||||||||||