Advanced Search
MyIDEAS: Login to save this paper or follow this series

Optimal Diversification

Contents:

Author Info

  • Gomes, Joao F
  • Livdan, Dmitry

Abstract

In this Paper we show that the main empirical findings about firm diversification and performance are actually consistent with the optimal behavior of a firm that maximizes shareholder value. In our model, diversification allows a firm to explore better productive opportunities while taking advantage of economies of scale. The dynamic structure of our model allows us to examine several aspects of the relationship between firm diversification and performance in a very general setting.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cepr.org/pubs/dps/DP3461.asp
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3461.

as in new window
Length:
Date of creation: Jul 2002
Date of revision:
Handle: RePEc:cpr:ceprdp:3461

Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information:
Email:

Related research

Keywords: corporate strategy; diversification; diversification discount; size; total factor productivity;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Frank R. Lichtenberg, 1990. "Industrial De-Diversification and its Consequences for Productivity," NBER Working Papers 3231, National Bureau of Economic Research, Inc.
  2. Jose Manuel Campa & Simi Kedia, 2002. "Explaining the Diversification Discount," Journal of Finance, American Finance Association, vol. 57(4), pages 1731-1762, 08.
  3. Gordon M Phillips & Vojislav Maksimovic, 1999. "Do Conglomerate Firms Allocate Resources Inefficiently?," Working Papers 99-11, Center for Economic Studies, U.S. Census Bureau.
  4. Raghuram Rajan & Henri Servaes & Luigi Zingales, 2000. "The Cost of Diversity: The Diversification Discount and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(1), pages 35-80, 02.
  5. Panzar, John C & Willig, Robert D, 1981. "Economies of Scope," American Economic Review, American Economic Association, vol. 71(2), pages 268-72, May.
  6. David S. Scharfstein, 1998. "The Dark Side of Internal Capital Markets II: Evidence from Diversified Conglomerates," NBER Working Papers 6352, National Bureau of Economic Research, Inc.
  7. Antoinette Schoar, 2002. "Effects of Corporate Diversification on Productivity," Journal of Finance, American Finance Association, vol. 57(6), pages 2379-2403, December.
  8. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-64, April.
  9. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  10. Yakov Amihud & Baruch Lev, 1981. "Risk Reduction as a Managerial Motive for Conglomerate Mergers," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 605-617, Autumn.
  11. Berger, Philip G. & Ofek, Eli, 1995. "Diversification's effect on firm value," Journal of Financial Economics, Elsevier, vol. 37(1), pages 39-65, January.
  12. Matsusaka, John G, 2001. "Corporate Diversification, Value Maximization, and Organizational Capabilities," The Journal of Business, University of Chicago Press, vol. 74(3), pages 409-31, July.
  13. Denis, David J & Denis, Diane K & Sarin, Atulya, 1997. " Agency Problems, Equity Ownership, and Corporate Diversification," Journal of Finance, American Finance Association, vol. 52(1), pages 135-60, March.
  14. Lewellen, Wilbur G, 1971. "A Pure Financial Rationale for the Conglomerate Merger," Journal of Finance, American Finance Association, vol. 26(2), pages 521-37, May.
  15. Owen A. Lamont, 2001. "The Diversification Discount: Cash Flows Versus Returns," Journal of Finance, American Finance Association, vol. 56(5), pages 1693-1721, October.
  16. Stulz, ReneM., 1990. "Managerial discretion and optimal financing policies," Journal of Financial Economics, Elsevier, vol. 26(1), pages 3-27, July.
  17. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Missaka Warusawitharana, 2007. "Corporate asset purchases and sales: theory and evidence," Finance and Economics Discussion Series 2007-27, Board of Governors of the Federal Reserve System (U.S.).
  2. Hvide, Hans K. & Kristiansen, Eirik G., 2006. "Management of Knowledge Workers," Discussion Papers 2006/7, Department of Business and Management Science, Norwegian School of Economics.
  3. Gomes, Joao F & Livdan, Dmitry, 2002. "The Performance of Optimally Diversified Firms: Reconciling Theory and Evidence," CEPR Discussion Papers 3546, C.E.P.R. Discussion Papers.
  4. Larry D. Wall & Alan K. Reichert & Hsin-Yu Liang, 2008. "The final frontier : the integration of banking and commerce. Part 1, the likely outcome of eliminating the barrier," Economic Review, Federal Reserve Bank of Atlanta.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:3461. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.