Using recent econometric developments about causal inference, I examine whether diversification destroys value. I estimate the value effect of diversification by matching diversifying and single-segment firms on their propensity score––the predicted values from a probit model of the propensity to diversify. I also use Heckman’s (1979) two-stage estimator for comparison purposes. I find that on average, diversification does not destroy value. This finding is robust to the choice of estimator, sample, measures of excess value, and specification.
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Article provided by Financial Management Association in its journal Financial Management.
Volume (Year): 33 (2004) Issue (Month): 2 (Summer) Pages: Download reference. The following formats are available: HTML,
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Handle: RePEc:fma:fmanag:villalonga04
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