Value of Conglomerates and Capital Market Conditions
AbstractThis article studies variations in the value of diversification across time under variouscapital market conditions. I find that when external capital is more costly at the aggregatelevel, the value of conglomerates increases relative to focused firms. I also find that thisincrease is greater for financially constrained conglomerates, such as bank-dependent or small conglomerates. My findings support the theories on the advantage of diversification over focus. They suggest that the ability to substitute external capital markets with internalcapital markets creates value for conglomerates when the financing cost in external marketsis high, especially for those conglomerates that are financially constrained.
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Bibliographic InfoArticle provided by Financial Management Association in its journal Financial Management.
Volume (Year): 35 (2006)
Issue (Month): 4 (Winter)
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Postal: University of South Florida 4202 E. Fowler Ave. COBA #3331 Tampa, FL 33620
Web page: http://www.fma.org/
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- Stefan Erdorf & Thomas Hartmann-Wendels & Nicolas Heinrichs & Michael Matz, 2012. "Corporate Diversification and Firm Value: A Survey of Recent Literature," Cologne Graduate School Working Paper Series 03-01, Cologne Graduate School in Management, Economics and Social Sciences.
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- Nippa, Michael, 2011. "Zur Notwendigkeit des Corporate Portfolio Management: Eine Würdigung der wissenschaftlichen Forschung der letzten vier Jahrzehnte," Freiberg Working Papers 2011,02, TU Bergakademie Freiberg, Faculty of Economics and Business Administration.
- Finnerty, John D. & Jiao, Jie & Yan, An, 2012. "Convertible securities in merger transactions," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 275-289.
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