Does Information Asymmetry Explain The Diversification Discount?
AbstractWe examine the diversification discount while controlling for differences in information asymmetry between diversified and nondiversified firms. We show that both diversified and nondiversified firms with higher levels of information asymmetry have discounted firm values relative to firms with lower levels of information asymmetry, although a diversification discount remains at all levels of information asymmetry. Fixed-effect Fama-MacBeth regressions confirm the existence of a statistically significant relation between information asymmetry proxies and excess value, but they also show that a significant diversification discount remains after controlling for differences in information asymmetry and other firm characteristics discussed in earlier studies (e.g., size, profitability, leverage, and capital constraint). 2004 The Southern Finance Association and the Southwestern Finance Association.
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Bibliographic InfoArticle provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.
Volume (Year): 27 (2004)
Issue (Month): 2 ()
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