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 The Effect of the Financial Crisis on the Value of Corporate Diversification in Spanish Firms written by Gabriel de la Fuente and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the impact of the financial crisis on the value of corporate diversification in a civil law country such as Spain. The financial crisis offers a natural research experiment to test the effect of a credit-constrained environment on benefits and costs emerging from internal capital markets. Using a panel of Spanish listed firms over the 1997 to 2012 period and controlling for endogeneity, we find that the financial crisis negatively moderates the impact of industrial diversification on a firm's value. This result supports the idea that financial constraints are likely to exacerbate agency costs within internal capital markets in civil law countries over financial benefits, due to a weaker protection of investors' rights.
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 Strategic Business Fits and Corporate Acquisition Empirical Evidence written by Lois M. Shelton and published by Palala Press. This book was released on 2018-02-20 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This work has been selected by scholars as being culturally important, and is part of the knowledge base of civilization as we know it. This work was reproduced from the original artifact, and remains as true to the original work as possible. Therefore, you will see the original copyright references, library stamps (as most of these works have been housed in our most important libraries around the world), and other notations in the work. This work is in the public domain in the United States of America, and possibly other nations. Within the United States, you may freely copy and distribute this work, as no entity (individual or corporate) has a copyright on the body of the work. As a reproduction of a historical artifact, this work may contain missing or blurred pages, poor pictures, errant marks, etc. Scholars believe, and we concur, that this work is important enough to be preserved, reproduced, and made generally available to the public. We appreciate your support of the preservation process, and thank you for being an important part of keeping this knowledge alive and relevant.
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 Valuing Financial Conglomerates written by Claudia Curi and published by FrancoAngeli. This book was released on 2017-03-03T00:00:00+01:00 with total page 148 pages. Available in PDF, EPUB and Kindle. Book excerpt: 385.1
Download or read book Diversification Refocusing and Economic Performance written by Constantinos Markides and published by MIT Press. This book was released on 1995 with total page 228 pages. Available in PDF, EPUB and Kindle. Book excerpt: This work examines the causes and consequences of the "refocusing" phenomenon, where companies have stopped diversifying and begun focusing once more on their core product lines. Coverage includes a discussion of the effects of refocusing on market value, profitability and organizational structure.
Download or read book Does Diversification Destroy Value written by Owen A. Lamont and published by . This book was released on 2000 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: Does corporate diversification reduce shareholder value? Since firms endogenously choose to diversify, exogenous variation in diversification is necessary in order to draw inferences about the causal effect. We examine changes in the within-firm dispersion of industry investment, or diversity.' We find that exogenous changes in diversity, due to changes in industry investment, are negatively related to firm value. Thus diversification destroys value, consistent with the inefficient internal capital markets hypothesis. This finding is not caused by measurement error. We also find that exogenous changes in industry cash flow diversity are negative related to firm value
Download or read book Puzzle of Corporate Diversification Efficiency in BRIC Countries written by Svetlana Grigorieva and published by . This book was released on 2015 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: Researchers have long tried to define the impact of corporate diversification on firm value. Academic papers mainly concentrate on the effects of corporate diversification in mature markets while its consequences in emerging capital markets are less explored. This article presents the results of an empirical analysis of corporate diversification strategies of a sample of companies from BRIC countries that expanded via acquisitions during 2000-2013. We contribute to the existing literature by examining the effects of corporate diversification on firm value during the pre- and post-crisis periods. In line with other studies, we distinguish between related and unrelated diversification and in contrast to them we single out and separately analyze horizontal, conglomerate and vertical acquisitions. Based on a sample of 319 deals initiated by companies from BRIC countries, we found positive (3.32% and 9.01%) and statistically significant cumulative abnormal returns for conglomerate acquisitions during the pre- and post-crisis periods, correspondingly. We also found that the market reacts positively and statistically significant to the announcements of horizontal and vertical integration only during the pre-crisis period.
Download or read book Firm Diversification Mutual Forbearance Behavior and Price Cost Margins written by Allyn D. Strickland and published by Routledge. This book was released on 2018-01-12 with total page 151 pages. Available in PDF, EPUB and Kindle. Book excerpt: Concern over conglomerate mergers increased dramatically in the latter part of the twentieth century. An acceleration in conglomerate merger activity rekindled firms’ takeover fears and swamped trustbusters, and attention focused on the political and economic issues surrounding conglomerate mergers. Of particular importance is the possibility that conglomerate mergers may increase aggregate concentration and eventually create a ‘zaibatsu’ economy. This book, first published in 1984, addresses the issue by examining the mutual forbearance hypothesis. More specifically, do multi-market contacts among diversified firms affect market competition?
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 Essays on Corporate Diversification and Firm Value written by Tyson Brighton Mackey and published by . This book was released on 2006 with total page 97 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: This dissertation finds new evidence on the relationship between diversification and firm performance. In Chapter Two, theory and evidence are presented showing how empirical studies accounting for the endogeneity of the diversification decision must also account for a firm's alternative uses for its free cash flow. This chapter examines dividends and stock repurchases in tandem with the firm's diversification decision and finds that the factors that lead a firm to diversify also make it more likely to pay a dividend. Controlling for this relationship, the diversification premium found by recent research correcting for endogeneity turns back into a discount. In Chapter Three, consideration is given to the possibility that different firms can have differing results from diversification. Using a random parameters model, a distribution of firm-specific diversification effects is estimated, finding that, while diversification destroys value on average, it creates value for a quarter of firms. This chapter also hypothesizes that firms may have an optimal portfolio of businesses, and firms that are not creating value from diversification could potentially do so through by diversifying further. Through a series of hypothetical related and unrelated diversification scenarios, this chapter finds that almost half of the diversified firms who are not creating value through their past diversification efforts would create value from further related diversification; while very few of the firms that are currently creating value from diversification would create value from further diversification. After observing the heterogeneity across firms in the impact of diversification on firm performance, theory and evidence is presented on the source of this heterogeneity in Chapter Four. Using a Bayesian linear hierarchical model, firm-specific effects of diversification on firm performance are estimated as a function of firm attributes. The main finding is that the firm-specific resources that allow a firm to succeed in its original business, allow the firm to succeed through related diversification. Unsuccessful firms will not find success simply by finding a new market in which to compete.
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 Effect of Corporate Diversification on Firm Value written by Samson Weldeslassie and published by . This book was released on 2005 with total page 142 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Diversification Refocusing and Firm Value written by Gonul Colak and published by . This book was released on 2010 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: At any point in time a firm faces three restructuring choices: diversify, refocus, or do nothing. This study analyzes the causes and the consequences of these actions in a unified framework using the appropriate methodologies. Various factors, such as firm's characteristics and multinational nature, its industry's characteristics, its exchange and index inclusion, and divested (or acquired) segment(s)' industry conditions, are considered as the determinants of the diversifying and the refocusing decisions. The estimation results from the corresponding multinomial logit model suggest that refocusing occurs generally due to firm-specific reasons, and diversification due to outside factors, such as industry and economic conditions. Added or dropped segment's industry profitability, its relationship to the core business of the firm, and its relatedness to the businesses of the conglomerate's other segments have a nontrivial effect on either decision. In a related analysis, the paper explicitly models and estimates the valuation consequences that are sustained by the firm after it undertakes a refocusing or a diversification action. To isolate the changes in firm's value that are due to these decisions only, a 2SLS estimation is used to control for endogeneity that arises because the factors that affect a firm's value are likely to have also induced the firm to make the corresponding decision. The novelty of my approach is in its inclusion of variables measuring the consequences due to both actions, the diversification and the refocusing, in the same valuation equation. Contrary to some earlier findings, I find no evidence of 'diversification discount' or 'refocusing premium.' The choice of this paper to analyze all corporate restructuring decisions in a unified framework yields valuable business insights into the reasons for undertaking such corporate events.
Download or read book Both Sides of Corporate Diversification written by Gordon M. Bodnar and published by . This book was released on 1997 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the effect of geographic and industrial diversification on firm value for a sample of over 20,000 firm-year observations of U.S. corporations from 1987-1993. Our" multivariate tests indicate the average value of a firm with international operations is 2.2% higher than comparable domestic single activity firms, while the average value of a firm with activities in multiple industrial segments is 5.4% lower than a portfolio of comparable focused domestic firms in similar activities. More importantly, we demonstrate that failure to control simultaneously for both dimensions of diversification results in over-estimation of the negative value impact of industrial diversification, but has little impact on estimates of the positive value impact of geographic diversification
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.
