Download or read book Corporate Diversification Asymmetric Information and Firm Value written by Shawn Thomas and published by . This book was released on 2000 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: There is no clear theoretical consensus about the overall effect of firm diversification on the magnitude of asymmetric information problems that firms face. We therefore compare stock market based measures of asymmetric information for diversified firms with those they could reasonably expect to exhibit if they were split along industry lines into separately traded entities. We find that approximately 74% of the diversified firms in our sample have less severe asymmetric information problems as conglomerates than they could expect to experience as separately traded pure-play firms. We also find evidence that diversified firms with low levels of information asymmetry trade at significant diversification premiums while diversified firms with high levels of information asymmetry trade at significant diversification discounts.

Download or read book The Coinsurance Effect of Corporate Diversification written by Dominik Nußmann and published by Springer. This book was released on 2017-08-22 with total page 164 pages. Available in PDF, EPUB and Kindle. Book excerpt: Dominik Nußmann comprehensively analyzes the coinsurance effect of corporate diversification by first providing a structured review of all relevant findings presented in the financial economics and accounting literature. Based on this review, he examines important accounting and economic implications of the coinsurance effect by means of two comprehensive empirical analyses. In particular, he finds that diversified firms benefit from coinsurance through financial as well as accounting synergies which entail considerable value-enhancing potentials.

Download or read book Diversification Information Asymmetry Cost of Capital and Production Efficiency written by Yong Wang and published by . This book was released on 2008 with total page 189 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines how diversification changes firms' key characteristics, which consequently alter firms' value. The reason why I focus on this topic is because of the mixed findings in literature about the valuation effect of diversification. This study offers deeper insights to the influence of diversification on important valuation factors that are already identified in finance literature. Specifically, it examines if diversification affects firms' information asymmetry problem, firms' cost of capital and cash flow, and firms' production efficiency. The study looks at both the financial industry and non-financial industry and the chapters are arranged in the following order. Firstly, empirical studies show that investors do not value BHCs' pursuit of non-interest income generating activities and yet these activities have demonstrated a dramatic pace of growth in the recent decades. An interesting question is what factors drive the discontent of the investors with the diversification endeavors of the BHCs in non-interest income activities. The first chapter examines the subject from the view point of information opaqueness, which is unique in the banking industry in terms of its intensity. We propose that increased diversification into non-interest income activities deepens information asymmetry, making BHCs more opaque and curtailing their value, as a result. Two important results are obtained in support of this proposition. First, analysts' forecasts are less accurate and more dispersed for the BHCs with greater diversity of non-interest income activities, indicating that information asymmetry problem is more severe for these BHCs. Second, stock market reactions to earning announcements by these BHCs signaling new information to the market are larger, indicating that more information is revealed to the market by each announcement. These findings indicate that increased diversity of non-interest income activities is associated with more severe information asymmetry between insiders and outsiders and, hence, a lower valuation by shareholder. Secondly, since Lang and Stulz (1994) and Berger and Ofek (1995), corporate literature has taken the position that industrial diversification is associated with a firm value discount. However, the validity and the sources of the diversification discount are still highly debated. In particular, extant studies limit themselves to cash flow effects, totally overlooking the cost of capital as a factor determining firm value. Inspired by Lamont and Polk (2001), the second chapter examines how industrial and international diversification change the conglomerates' cost of capital (equity and debt), and thereby the firm value. Our empirical results, based on a sample of Russell 3000 firms over the 1998-2004 period, show that industrial (international) diversification is associated with a lower (higher) firm cost of capital. These findings also hold for firms fully financed with equity. In addition, international diversification is found to be associated with a lower operating cash flow while industrial diversification doesn't alter it. These results indicate that industrial (international) diversification is associated with firm value enhancement (destruction). Given the fact that the majority of the firms involved in industrial diversification also diversify internationally, failing to separate these two dimensions of diversification may result in mistakenly attributing the diversification discount to industrial diversification. Thirdly, financial conglomerates have been increasingly diversifying their business into banking, securities, and insurance activities, especially after the Gramm-Leach-Bliley Act (GLBA, 1999). The third chapter examines whether bank holding company (BHC) diversification is associated with improvement in production efficiency. By applying the data envelopment analysis (DEA), the Malmquist Index of productivity, and total factor productivity change as a decomposed factor of the index, are calculated for a sample of BHCs over the period 1997-2007. The following results are obtained. First, technical efficiency is negatively associated with activity diversification and the effect is primarily driven by BHCs that did not diversify through Section 20 subsidiaries before GLBA. Second, the degree of change in diversification over time does not affect the total factor productivity change but is negatively associated with technical efficiency change over time. This latter effect is also primarily shown on BHCs that did not have Section 20 subsidiaries before GLBA. Therefore, it can be concluded that diversification is on average associated with lower production efficiency of BHCs, especially those BHCs without first-mover advantage obtained through Section 20 subsidiaries. These chapters explores the possible channels through which diversification could alter firms' valuation. They contribute to the literature by offering further knowledge about the effect of diversification.

Download or read book Asymmetric Information Corporate Finance and Investment written by R. Glenn Hubbard and published by University of Chicago Press. This book was released on 2009-05-15 with total page 354 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this volume, specialists from traditionally separate areas in economics and finance investigate issues at the conjunction of their fields. They argue that financial decisions of the firm can affect real economic activity—and this is true for enough firms and consumers to have significant aggregate economic effects. They demonstrate that important differences—asymmetries—in access to information between "borrowers" and "lenders" ("insiders" and "outsiders") in financial transactions affect investment decisions of firms and the organization of financial markets. The original research emphasizes the role of information problems in explaining empirically important links between internal finance and investment, as well as their role in accounting for observed variations in mechanisms for corporate control.

Download or read book Asymmetric Information and Conglomerate Discount written by Charlie Charoenwong and published by . This book was released on 2013 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: The existing literature argues that diversified firms may be undervalued due to the information asymmetry between a firm's management and the market. Splitting the firm's divisions into multiple business components is thought to facilitate the market valuation of each component more accurately. We investigate the information hypothesis from corporate spinoffs from 1981 through 2004. We use the post-spinoff data to reconstruct the diversified firm, assess the improvement in value at the combined firm level, and relate the value improvement to the change in the level of information asymmetry. We find that, prior to the spinoff, the sample firms have significantly higher levels of information asymmetry than their industry- and size-matched peers and that the level of information asymmetry decreases to a certain extent following the spinoff. We also find that the sample firms are valued at a substantial discount before the spinoff and that the valuation discount is eliminated after the completion of the spinoff. The matching firms, however, do not trade at a significant discount either pre- or post-spinoff. This is consistent with the view that only undervalued firms divest. More importantly, we find that the change in excess value around the spinoff is significantly and negatively related to the change in the level of information asymmetry. We conclude that information asymmetry is at least partly responsible for the diversification discount.

Download or read book Firm Diversification and Asymmetric Information written by Shawn Thomas and published by . This book was released on 2015 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: Managers frequently cite the desire to mitigate asymmetric information as a motivation for increasing firm focus. The information benefits of focus appear relevant for the subset of firms that actually increase their focus; however, the relevance of focus-related information benefits for the population of diversified firms is an open question. This paper examines the relationship between corporate diversification and asymmetric information proxies derived from analysts' forecasts and abnormal returns associated with earnings announcements. I find that greater diversification is not associated with increased asymmetric information. These results call into question the notion that corporate diversification strictly exacerbates information problems.

Download or read book Competition in the Open Economy written by Richard E. Caves and published by Harvard University Press. This book was released on 1980 with total page 468 pages. Available in PDF, EPUB and Kindle. Book excerpt: With the nations of the world becoming more interdependent, it is imperative to take international influences into account in understanding the organization of industry within a country. This book extends the structure/conduct/performance framework of analysis to present a fully specified simultaneous equation model of an open economy--Canada. By estimating a system of equations of all the major variables, the authors can identify which variables are dependent and which are independent. They are thus able to assess the relative importance of such factors as seller concentration, import competition, retailing structure, advertising expenditure, research and development spending, and technical and allocative efficiency in shaping the organization of industry in Canada. In addition, using both industry-level and firm-level data, the authors develop methods for assessing the effect of structural variables on diversification strategies and the consequences for market performance. They also study the effects of such variables on firms' access to capital markets. The book concludes with a discussion of the implications of the findings for government policy.

Download or read book Economic Policy and the Regulation of Corporate Securities written by Henry G. Manne and published by . This book was released on 1969 with total page 420 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Moderating Impact of Managerial Ability on the Relationship Between Diversification and Firm Value Investment Efficiency and Information Asymmetry written by Isabella Karasamini and published by . This book was released on 2015 with total page 121 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Diversification Financial Performance and the Destruction of Corporate Value written by Ernest Francis Mabonesho and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: FSA techniques appear to offer valuable complementary theoretical and empirical insights to conventional finance research methods in order to better understand the financial impact of corporate diversification strategies. FSA can provide a conceptual framework to integrate the often confusing and conflicting theoretical explanations and empirical results of past research. This thesis explores the potential usefulness of FSA in addressing finance research problems or paradoxes that are characterised by large numbers of inter-connected variables, complex causality and where different configurations lead to similar outcomes. Specifically fuzzy set analysis is used on cross-sectional data from firms listed in London stock exchange FTSE All-share index (2001-2010) in order to address a gap in the literature as to "how corporate diversification necessarily and sufficiently leads to favourable financial performance". The results of this research show that there is no simple answer to this question nor is there a simple theoretical explanation. It appears that a diversification strategy per se is neither a necessary nor a sufficient indicator of favourable or unfavourable financial performance. The FSA results showed multiple configurations of corporate diversifications and other firm attributes which are usually or more often than not sufficiently associated with favourable firm value, profitability, and risk-return performance. This indicates presence of complex causality, asymmetric causality, and equifinality in examining determinants of financial performance. The results are partially explained by elements of standalone theories but better explained by the construction of a series of hybrid theoretical frameworks. The usefulness of FSA in helping understand and improve decision making processes that rely on complex financial or numeric information has been demonstrated, and it is hoped that this research acts as a "stepping stone" to legitimate a new set of analytical techniques for accounting and finance researchers to use. This would help corporate managers/CEOs, analysts, and investors in decision making processes.

Download or read book Corporate Diversification and Firm Value During Economic Downturns written by Nikanor Volkov and published by . This book was released on 2015 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the effect of corporate diversification on firm value during periods of economic downturns. Analysis of diversified firms' valuation during recessionary periods reveals a significant increase in relative value of diversified firms. The observed improvement in the relative valuation is only a temporary phenomenon, which disappears in the four quarters following the trough of the recession. We do not find support to the hypothesis that the improvement in relative valuation of diversified firms during economic downturns is attributed to the ability of diversified firms to utilize broader external capital markets. We demonstrate that the improvement in relative valuation is largely driven by diversified firms that are financially constrained, and, therefore, attribute the observed improvement to more efficient internal capital allocation during recessions.

Download or read book Behavioral Corporate Finance written by Hersh Shefrin and published by College Ie Overruns. This book was released on 2017-04-16 with total page 300 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Corporate Diversification and Firm Value written by Stefan Erdorf and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We survey the recent literature on corporate diversification. How does corporate diversification influence firm value? Does it create or destroy value? Until the beginning of this century, the predominant thinking among researchers and practitioners was that corporate diversification leads to an average discount on firm value; however, several studies cast doubt on the diversification discount. In the last decade, there has been no clear consensus as to whether there is a discount or even a premium on firm value. Recent literature concludes that the effect on value differs from firm to firm and that corporate diversification alone does not drive the discount or premium; rather, the effect is heterogeneous across certain industry settings, economic conditions, and governance structures.

Download or read book Ownership and Asymmetric Information Problems in the Corporate Loan Market written by Lewis Gaul and published by CreateSpace. This book was released on 2015-01-01 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: In credit markets, asymmetric information problems arise when borrowers have private information about their creditworthiness that is not observable by lenders. If these informational asymmetries do not negatively affect lenders' profitability, then they are irrelevant to lenders.

Download or read book Asymmetric Information and the Market Structure of the Banking Industry written by Mr.Giovanni Dell'Ariccia and published by International Monetary Fund. This book was released on 1998-06-01 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper analyzes the effects of informational asymmetries on the market structure of the banking industry in a multi-period model of spatial competition. All lenders face uncertainty with regard to borrowers’ creditworthiness, but, in the process of lending, incumbent banks gather proprietary information about their clients, acquiring an advantage over potential entrants. These informational asymmetries are an important determinant of the industry structure and may represent a barrier to entry for new banks. The paper shows that, in contrast with traditional models of horizontal differentiation, the steady-state equilibrium is characterized by a finite number of banks even in the absence of fixed costs.

Download or read book Capital Structure written by Ahmed Riahi-Belkaoui and published by Praeger. This book was released on 1999-02-28 with total page 238 pages. Available in PDF, EPUB and Kindle. Book excerpt: This text uses theoretical and contingency approaches to examine the question of whether capital structure can be determined. Using a bond rating model it looks at the evaluation of capital structure, the resolution of issues pertaining to equity and liabilities, and their contribution to reports

Download or read book Handbook of the Economics of Finance written by G. Constantinides and published by Elsevier. This book was released on 2003-11-04 with total page 698 pages. Available in PDF, EPUB and Kindle. Book excerpt: Arbitrage, State Prices and Portfolio Theory / Philip h. Dybvig and Stephen a. Ross / - Intertemporal Asset Pricing Theory / Darrell Duffle / - Tests of Multifactor Pricing Models, Volatility Bounds and Portfolio Performance / Wayne E. Ferson / - Consumption-Based Asset Pricing / John y Campbell / - The Equity Premium in Retrospect / Rainish Mehra and Edward c. Prescott / - Anomalies and Market Efficiency / William Schwert / - Are Financial Assets Priced Locally or Globally? / G. Andrew Karolyi and Rene M. Stuli / - Microstructure and Asset Pricing / David Easley and Maureen O'hara / - A Survey of Behavioral Finance / Nicholas Barberis and Richard Thaler / - Derivatives / Robert E. Whaley / - Fixed-Income Pricing / Qiang Dai and Kenneth J. Singleton.