The Diversification Discount: Cash Flows vs. Returns."
AbstractDiversified firms have different values than comparable portfolios of single-segment firms. These value differences must be due to differences in either future cash flows or future returns. Expected security returns on diversified firms vary systematically with relative value. Discount firms have significantly higher subsequent returns than premium firms. Slightly more than half of the cross-sectional variation in excess values is due to variation in expected future cash flows, with the remainder due to variation in expected future returns and to covariation between cash flow and returns.
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Bibliographic InfoPaper provided by Center for Research in Security Prices, Graduate School of Business, University of Chicago in its series CRSP working papers with number 504.
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Other versions of this item:
- Owen Lamont & Christopher Polk, 1999. "The Diversification Discount: Cash Flows vs. Returns," NBER Working Papers 7396, National Bureau of Economic Research, Inc.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
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