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Diversification, Organization, and Value of the Firm

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  • Tatsuo Ushijima

Abstract

Because corporate diversification and organization co-evolve, diversification discounts, which are widely reported in the literature, can be caused by organizational structure, rather than by the industrial scope of the firm. The paper examines this possibility based on a large sample of Japanese firms for which the legal (parent-subsidiary) structure of the organization is easily observable. I identified a significant discount for diversified firms with and without control over the organizational structure. I also found that firms with a legally segmented structure (e.g., holding companies) are deeply discounted. My results suggest that both diversification and organization are important determinants of firm value.
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Suggested Citation

  • Tatsuo Ushijima, 2016. "Diversification, Organization, and Value of the Firm," Financial Management, Financial Management Association International, vol. 45(2), pages 467-499, May.
    • Handle: RePEc:bla:finmgt:v:45:y:2016:i:2:p:467-499
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    File URL: http://hdl.handle.net/10.1111/fima.2016.45.issue-2
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    Cited by:

    1. Ushijima, Tatsuo, 2020. "More-money and less-cash effects of diversification: Evidence from Japanese firms," Japan and the World Economy, Elsevier, vol. 56(C).
    2. Justin Lallemand, 2020. "Bank lending to targets of active takeover attempts: The simultaneous choice of loan maturity, pricing, and security," Review of Financial Economics, John Wiley & Sons, vol. 38(2), pages 332-351, April.
    3. Tatsuo USHIJIMA, 2016. "Corporate Diversification, Employee Bargaining Power, and Wages," Discussion papers 16103, Research Institute of Economy, Trade and Industry (RIETI).
    4. Heejung Choi & Jungwon Suh, 2023. "The role of parent firms in business groups’ internal capital markets," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(3-4), pages 820-857, March.
    5. Tatsuo Ushijima, 2015. "Diversification Discount and Corporate Governance in Japan," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 11(3), pages 427-450, July.
    6. El Mouttaqui, Hajar & Gleason, Kimberly & Jiraporn, Pornsit & Salama, Feras M., 2024. "How does corporate diversification affect earnings management? A path analysis approach," International Review of Economics & Finance, Elsevier, vol. 95(C).
    7. Hideaki MIYAJIMA & Ryo OGAWA & Tatsuo USHIJIMA, 2017. "Are Smaller (Larger) Corporate Headquarters Better?," Discussion papers 17004, Research Institute of Economy, Trade and Industry (RIETI).
    8. Hidetomo TAKAHASHI & Peng XU, 2024. "Business Restructuring and Corporate Governance: Evidence from survey data," Discussion papers 24011, Research Institute of Economy, Trade and Industry (RIETI).
    9. Zhu, Ling & Kong, Dongmin, 2022. "Does government transparency shape firm decentralization? Evidence from a natural experiment in China," Emerging Markets Review, Elsevier, vol. 53(C).
    10. Fu, Jiangtao & Ogura, Yoshiaki, 2019. "Are Japanese companies less risky and less profitable than US companies? Evidence from a matched sample," Japan and the World Economy, Elsevier, vol. 51(C), pages 1-1.

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