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Does Diversification Cause the "Diversification Discount"?

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Author Info
Belen Villalonga (Anderson School of Management)
Abstract

I examine whether the discount of diversified firms can actually be attributed to diversification itself, using recent econometric developments about causal inference. The value effect of diversification is unbiasedly estimated by matching diversified and specialized firms on the propensity scorethe predicted values from a probit model of the propensity to diversify. I apply this method on a sample of diversified firms that trade at a significant mean and median discount relative to specialized firms of similar size and industry. I find that, when a more comparable benchmark based on propensity scores is used, the diversification discount as such disappears or even turns into a premium.

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Paper provided by Anderson Graduate School of Management, UCLA in its series University of California at Los Angeles, Anderson Graduate School of Management with number 1079.

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Date of creation: 01 Jul 2000
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Handle: RePEc:cdl:anderf:1079

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  1. repec:bep:eapadv:v:4:y:2004:i:1:p:1218-1218 is not listed on IDEAS
  2. Khanna, Tarun & Yafeh, Yishay, 2002. "Business Groups and Risk Sharing around the World," CEI Working Paper Series 2002-8, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  3. Caldart, Adrian & Ricart, Joan E., 2003. "Corporate strategy revisited: A view from complexity theory," IESE Research Papers D/528, IESE Business School. [Downloadable!]
  4. Tarun Khanna & Yishay Yafeh, 2001. "Business Groups and Risk Sharing around the World," OFRC Working Papers Series 2001fe02, Oxford Financial Research Centre. [Downloadable!]
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