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Both Sides of Corporate Diversification: The Value Impacts of Geographic and Industrial Diversification

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  • Gordon M. Bodnar
  • Charles Tang
  • Joseph Weintrop

Abstract

This paper examines the effect of geographic and industrial diversification on firm value for a sample of over 20,000 firm-year observations of U.S. corporations from 1987-1993. Our" multivariate tests indicate the average value of a firm with international operations is 2.2% higher than comparable domestic single activity firms, while the average value of a firm with activities in multiple industrial segments is 5.4% lower than a portfolio of comparable focused domestic firms in similar activities. More importantly, we demonstrate that failure to control simultaneously for both dimensions of diversification results in over-estimation of the negative value impact of industrial diversification, but has little impact on estimates of the positive value impact of geographic diversification.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6224.

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Date of creation: Oct 1997
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Handle: RePEc:nbr:nberwo:6224

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Cited by:
  1. Fauver, Larry & Naranjo, Andy, 2010. "Derivative usage and firm value: The influence of agency costs and monitoring problems," Journal of Corporate Finance, Elsevier, Elsevier, vol. 16(5), pages 719-735, December.
  2. Cassiman, Bruno & Colombo, Massimo & Garrone, Paola & Veugelers, Reinhilde, 2003. "Impact of M&A on the R&D process. An empirical analysis of the role of technological and market relatedness, The," IESE Research Papers, IESE Business School D/500, IESE Business School.
  3. Liang, Hsin-Yu & Ching, Yann Peng & Chan, Kam C., 2013. "Enhancing bank performance through branches or representative offices? Evidence from European banks," International Business Review, Elsevier, Elsevier, vol. 22(3), pages 495-508.
  4. Laeven, Luc, 2001. "International evidence on the value of product and geographic diversity," Policy Research Working Paper Series, The World Bank 2729, The World Bank.
  5. Jose Manuel Campa & Simi Kedia, 2002. "Explaining the Diversification Discount," Journal of Finance, American Finance Association, American Finance Association, vol. 57(4), pages 1731-1762, 08.
  6. Kevin Aretz & Söhnke M. Bartram, 2010. "Corporate Hedging And Shareholder Value," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, Southern Finance Association;Southwestern Finance Association, vol. 33(4), pages 317-371, December.
  7. Guo, Enyang & Keown, Arthur J. & Sen, Nilanjan, 2001. "The impact of firm diversification and focus: The Japanese experience," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 9(3), pages 165-193, June.
  8. Mike Peng & Andrew Delios, 2006. "What determines the scope of the firm over time and around the world? An Asia Pacific perspective," Asia Pacific Journal of Management, Springer, Springer, vol. 23(4), pages 385-405, December.
  9. Jory, Surendranath R. & Ngo, Thanh N., 2012. "The effect of foreign segment location on the geographical diversification discount," Global Finance Journal, Elsevier, vol. 23(2), pages 108-124.
  10. Elsas, Ralf & Hackethal, Andreas & Holzhäuser, Markus, 2010. "The anatomy of bank diversification," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(6), pages 1274-1287, June.
  11. Pablo A. Garcia‐Fuentes & Gustavo F. C. Ferreira & P. Lynn Kennedy, 2013. "Economic Performance of U.S. Multinational Agribusinesses: Foreign Direct Investment and Firm Strategy," Agribusiness, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 29(2), pages 242-255, 03.
  12. Campa, Jose M. & Chang, Kevin & Refalo, James F., 2000. "Options-based analysis of emerging market exchange rate expectations: Brazil's real plan, 1994-1999, An," IESE Research Papers, IESE Business School D/425, IESE Business School.
  13. Bushman, Robert & Chen, Qi & Engel, Ellen & Smith, Abbie, 2004. "Financial accounting information, organizational complexity and corporate governance systems," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 37(2), pages 167-201, June.
  14. Reid W. Click & Paul Harrison, 2000. "Does multinationality matter? Evidence of value destruction in U.S. multinational corporations," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2000-21, Board of Governors of the Federal Reserve System (U.S.).
  15. Robert L Conn & Andy Cosh & Paul M Guest & Alan Hughes, 2003. "The Impact on U.K. Acquirers of Domestic, Cross-border, Public and Private Acquisitions," ESRC Centre for Business Research - Working Papers, ESRC Centre for Business Research wp276, ESRC Centre for Business Research.
  16. Mohamed Azzim Gulamhussen & Carlos Pinheiro & Alberto Franco Pozzolo, 2010. "Do multinational banks create or destroy economic value?," Mo.Fi.R. Working Papers, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences 36, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  17. Eckert, Stefan & Dittfeld, Marcus & Muche, Thomas & Rässler, Susanne, 2010. "Does multinationality lead to value enhancement? An empirical examination of publicly listed corporations from Germany," International Business Review, Elsevier, Elsevier, vol. 19(6), pages 562-574, December.
  18. Júnior, José L. R., 2008. "What is the Value of Corporate Social Responsibility? An answer from Brazilian Sustainability Index," Insper Working Papers, Insper Working Paper, Insper Instituto de Ensino e Pesquisa wpe_142, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  19. Glaser, Markus & Müller, Sebastian, 2006. "Der Diversification Discount in Deutschland: Existiert ein Bewertungsabschlag für diversifizierte Unternehmen?," Sonderforschungsbereich 504 Publications, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim 06-13, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.

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