Sattar A. Mansi (Pamplin College of Business, Virginia Tech,) David M. Reeb (Culverhouse College of Commerce, University of Alabama)
Abstract
Prior literature finds that diversified firms sell at a discount relative to the sum of the imputed values of their business segments. We explore this documented discount and argue that it stems from risk-reducing effects of corporate diversification. Consistent with this risk-reduction hypothesis, we find that (a) shareholder losses in diversification are a function of firm leverage, (b) all equity firms do not exhibit a diversification discount, and (c) using book values of debt to compute excess value creates a downward bias for diversified firms. Overall, the results indicate that diversification is insignificantly related to excess firm value. Copyright The American Finance Association 2002.
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Volume (Year): 57 (2002) Issue (Month): 5 (October) Pages: 2167-2183 Download reference. The following formats are available: HTML
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