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Corporate diversification and abnormal returns

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  • Chris M. Lawrey

    (University of South Alabama)

  • Brandon C. L. Morris

    (Wright State University)

Abstract

We examine the effect of corporate diversification by comparing abnormal returns between portfolios of diversified firms and focused firms. Our study covers US firms for the years 1976–2009 and compares abnormal returns over 12, 24, and 36-month windows. Initial univariate tests show mixed results, though after we control for firm, industry, and time effects, we find convincing evidence that diversified-firm portfolios outperform focused-firm portfolios over the 3-year term. Our findings indicate that the benefits of corporate diversification are captured over longer investing horizons.

Suggested Citation

  • Chris M. Lawrey & Brandon C. L. Morris, 2019. "Corporate diversification and abnormal returns," Journal of Asset Management, Palgrave Macmillan, vol. 20(1), pages 31-37, February.
    • Handle: RePEc:pal:assmgt:v:20:y:2019:i:1:d:10.1057_s41260-018-0100-0
    DOI: 10.1057/s41260-018-0100-0
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    More about this item

    Keywords

    Corporate finance; Diversification; Abnormal returns;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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