IDEAS home Printed from https://ideas.repec.org/a/bla/finmgt/v36y2007i3p5-31.html
   My bibliography  Save this article

Value, Survival, and the Evolution of Firm Organizational Structure

Author

Listed:
  • Richard Borghesi
  • Joel Houston
  • Andy Naranjo

Abstract

We examine corporate product diversification as a dynamic process. Consistent with prior research, we find that the average diversification discount is about 8% when using the standard value-multiple approach. However, we find that a significant portion of the diversification discount arises from benchmark comparisons of value ratios of mature firms with those of very young firms that are more likely to have high value multiples. The magnitude of the diversification discount falls by 15% to 30% when we control for firm age. We also show that diversification reduces the mortality rate of firms, and we provide evidence that mature firms pursue diversification strategies partly as a means to exit stagnant business segments for industries that are more highly valued. Copyright (c) 2007 Financial Management Association International.

Suggested Citation

  • Richard Borghesi & Joel Houston & Andy Naranjo, 2007. "Value, Survival, and the Evolution of Firm Organizational Structure," Financial Management, Financial Management Association International, vol. 36(3), pages 5-31, September.
  • Handle: RePEc:bla:finmgt:v:36:y:2007:i:3:p:5-31
    as

    Download full text from publisher

    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1755-053X.2007.tb00078.x
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

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


    Cited by:

    1. de Andrés, Pablo & de la Fuente, Gabriel & Velasco, Pilar, 2017. "Does it really matter how a firm diversifies? Assets-in-place diversification versus growth options diversification," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 316-339.
    2. Lee, Bong Soo & Li, Ming-Yuan Leon, 2012. "Diversification and risk-adjusted performance: A quantile regression approach," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 2157-2173.
    3. Hund, John & Monk, Donald & Tice, Sheri, 2010. "Uncertainty about average profitability and the diversification discount," Journal of Financial Economics, Elsevier, vol. 96(3), pages 463-484, June.
    4. Pasquale Massimo Picone & Giovanni Battista Dagnino, 2016. "Revamping research on unrelated diversification strategy: perspectives, opportunities and challenges for future inquiry," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 20(3), pages 413-445, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:finmgt:v:36:y:2007:i:3:p:5-31. 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: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/fmaaaea.html .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.