Download or read book Global Diversification Industrial Diversification and Firm Value written by David J. Denis and published by . This book was released on 2002 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a sample of 44,288 firm-years over the period 1984-1997, we document an increase in both the incidence and the extent of global diversification over time. This trend does not, however, reflect a substitution of global for industrial diversification. We also find that global diversification results in average valuation discounts of approximately the same magnitude as those for industrial diversification. Analysis of the changes in excess value associated with changes in diversification reveals that increases in global diversification reduce excess value, while reductions in global diversification increase excess value. These findings are consistent with the view that the costs of global diversification outweigh the benefits.
Download or read book Valuation Effects of Global Diversification written by Amar Gande and published by . This book was released on 2012 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the effect of global diversification on firm value using a dataset of U.S. firms from 1994-2002. We document that global diversification enhances firm value. Specifically, we find Tobin's q, our proxy for firm value increases with foreign sales (measured as a fraction of the firm's total sales) even after we control for well-known determinants of firm value. In contrast, we find no such evidence for industrial diversification. We find evidence of both financial and real effects driving such a value enhancement from global diversification. Furthermore, we find that the valuation benefits from global diversification are higher if the firm diversifies into countries with creditor rights that are stronger than that of the United States. Our results are also robust to controlling for the firm's endogenous choice to diversify across countries or across industries. Our study is anchored by the theories of both the financial and real dimensions of global diversification, and our results support both theories. Overall, our results provide a unifying view that global diversification benefits are driven by both the real and financial dimensions.
Download or read book The Impact of Corporate Industrial and International Diversification on Firm Value written by Thomas-Reinhold Kreye and published by . This book was released on 2007 with total page 131 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Disentangling the Impacts of Industrial and Global Diversification on Firm Risk written by Mohammad Jafarinejad and published by . This book was released on 2018 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the impact of corporate diversification on firm risk exposure from 1998 to 2016. We find that both global and industrial diversification mitigate idiosyncratic and world market risk while having a negligible impact on U.S. market risk, but the effects vary before, during, and after the financial crisis of 2007-2009. Before the crisis, only global diversification mitigates idiosyncratic risk, but it increases firms' exposure to world market risk. During the crisis, industrial diversification increases idiosyncratic risk, but both types of diversification increase exposure to U.S. market risk. After the crisis, both types of diversification increase firms' exposure to U.S. market risk but have negligible impact on idiosyncratic and world market risk. Our findings remain robust after we control for the potential endogeneity of the diversification decision through various self-selection models.
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 Effect of Multinational Diversification on Firm Value written by Protiti Dastidar and published by . This book was released on 2002 with total page 346 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: This dissertation presents two essays that examine whether international diversification creates value. Each essay analyzes the issue from a distinct perspective using different methodologies. The dissertation extends the current literature by addressing several methodological limitations. The analysis addresses the confounding of international and industrial diversification by separately examining industrial, international, and multinational conglomerate diversification. It also addresses the inappropriate benchmarking by excluding internationally or industrially diversified firms from the benchmarks. The analysis accounts for the endogenous nature of the diversification decision. Finally, the sample is extended beyond the US.
Download or read book Global diversification industrial diversification and firm value written by David J. Denis and published by . This book was released on 1999 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Valuation Impact of Industrial and Global Diversification written by Nguyen Thi Anh Thu and published by . This book was released on 2005 with total page 73 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Why firms diversify written by Randall Morck and published by . This book was released on 1998 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Global Diversification Discount and Its Discontents written by Sungyong Chang and published by . This book was released on 2018 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: The documented discount on globally diversified firms is often cited, but a correlation is not per se evidence that global diversification destroys firm value. Firms choose to globally diversify based on their firm attributes, some of which may be unobservable. Given these exogenous firm attributes, the decision to diversify globally is endogenous and self-selected. Using the same specifications save for the Heckman selection instrument, our results contradict past research that did not address endogeneity. We posit that the global premium should reflect the value of multinational operating flexibility. We use the 2008-2009 financial crisis as creating exogenous variation to permit a test for the positive change in firm valuation due to global diversification. During the 2008-2009 financial crisis, the premium associated with global diversification became larger and more significant than before the 2008-2009 financial crisis. The churn of subsidiaries entering and exiting countries increased during the crisis, pointing to the value of an operating flexibility to restructure the geography of the multinational network. In all, the results contradict past findings and provide evidence that operating flexibility is more valued during times of high volatility, thus generating the diversification premium.
Download or read book Corporate Governance Shareholder Rights and Firm Diversification written by Pornsit Jiraporn and published by . This book was released on 2008 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Grounded in agency theory, this study investigates how the strength of shareholder rights influences the extent of firm diversification and the excess value attributable to diversification. The empirical evidence reveals that the strength of shareholder rights is inversely related to the probability to diversify. Furthermore, firms where shareholder rights are more suppressed by restrictive corporate governance suffer a deeper diversification discount. Specifically, we document a 1.1-1.4% decline in firm value for each additional governance provision imposed on shareholders. An explicit distinction is made between global and industrial diversification. Our results support agency theory as an explanation for the value reduction in diversified firms. The evidence in favor of agency theory appears to be more pronounced for industrial diversification than for global diversification.
Download or read book International Evidence on the Value of Product and Geographic Diversity written by Luc Laeven and published by . This book was released on 2001 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: Corporate diversification destroys value due to both agency and influence costs. Consistent with this finding, insider ownership is associated with less corporate diversification.
Download or read book The Impact of Geographic Diversification on Firm Performance written by Young Sang Kim and published by . This book was released on 2008 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper empirically examines the economic effects of both corporate industrial and geographic diversifications. Using a sample of 28,050 firm year observations from 1990 to 1998, we find that industrial and geographic diversifications are associated with firm value decrease. Consistent with Denis et al. (2002), the costs of corporate diversification may outweigh the benefits of diversification. We find that geographically diversified firms have higher Ramp;D expenditures, advertising expenses, operating income, ROE and ROA than industrially diversified firms. In addition, higher Ramp;D expenditures create value for multi-segment global firms, but not for single segment global firms. This result implies that there exists an interaction effect between industrial and geographic diversification. We also examine the effects of agency cost issues, as characterized by the diversification discount, on both industrial and geographic diversification. Consistent with the agency explanation, firms with high equity-based compensation are associated with higher firm value than firms with low equity-based compensation. Also, we find that firms with a higher insider ownership percentage are associated with higher excess value.
Download or read book Corporate Investment Activity Industrial and Global Diversification and Internal Capital Markets written by Ozgur Berk KAN and published by . This book was released on 2001 with total page 236 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Hedging Benefits of Domestic and Global Diversification written by Yixin Liu and published by . This book was released on 2016 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the influence of economic downturns on the relation between diversification and firm value in a large panel of U.S. firms over the period from 1984 to 2014. When markets are incomplete or there are significant frictions, diversification provides value when the fortunes of one business segment are imperfectly correlated with the fortunes of another. We test whether this hedging effect of diversification is valued by the market. We find that the hedging value of diversification during economic downturns reduces the diversification discount by 9% for domestically diversified firms and 12% for globally diversified firms. Our results are robust to controlling for endogeneity of diversification decisions. Consistent with a hedging value of diversification, we find that risk reduction as measured by the correlation of a firm's industrial and regional operations with the state of the economy is a key channel through which diversification becomes more valuable during economic downturns. We find little evidence that the enhanced value of diversification during downturns is attributable to alternative explanations such as mitigation of overinvestment in value-reducing diversification strategies, enhanced value of internal capital markets, or more valuable debt coinsurance.
Download or read book A Strategic Evaluation of the Effects of International Diversification on Firm Value written by Eve Hicks and published by . This book was released on 2000-01-01 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Global Diversification and Firm Performance written by Chuncheong Wan and published by . This book was released on 1992 with total page 636 pages. Available in PDF, EPUB and Kindle. Book excerpt:
