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The Diversification Puzzle: Revisiting the Value Impact of Diversification for UK Firms

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  • Edel Barnes
  • Gael Hardie‐Brown

Abstract

The literature on value impact of diversification decisions has focused on US firms and has examined industrial rather than geographic diversification. This study exploits the Lang and Stulz (1994), Berger and Ofek (1995) and Bodnar et al. (1999) methodologies and controls for form of diversification in assessing value impact for a sample of UK firms, for the period 1996‐2000. Using an adjusted value metric that controls for industry effects, we report a significant and perverse geographic discount of 14%, and no systematic industrial value impact, suggesting that sector characteristics may be a significant driver of diversification choice for UK firms.

Suggested Citation

  • Edel Barnes & Gael Hardie‐Brown, 2006. "The Diversification Puzzle: Revisiting the Value Impact of Diversification for UK Firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(9‐10), pages 1508-1534, November.
    • Handle: RePEc:bla:jbfnac:v:33:y:2006:i:9-10:p:1508-1534
    DOI: 10.1111/j.1468-5957.2006.00641.x
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    1. repec:ebl:ecbull:v:7:y:2008:i:3:p:1-7 is not listed on IDEAS
    2. de Andrés, Pablo & de la Fuente, Gabriel & Velasco, Pilar, 2016. "Are real options a missing piece in the diversification-value puzzle?," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 261-271.
    3. Sheng‐Syan Chen, 2008. "Organizational Form and the Economic Impact of Corporate New Product Strategies," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(1‐2), pages 71-101, January.
    4. Bharat A. Jain & Omesh Kini, 2008. "The Impact of Strategic Investment Choices on Post‐Issue Operating Performance and Survival of US IPO Firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(3‐4), pages 459-490, April.
    5. Ines Kahloul & Anouar Ben Mabrouk & Slah-Eddine Hallara, 2010. "Wavelet-Based Prediction for Governance, Diversification and Value Creation Variables," Papers 1011.5020, arXiv.org.
    6. Guang‐Zheng Chen & Edmund C. Keung, 2018. "Corporate diversification, institutional investors and internal control quality," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(3), pages 751-786, September.

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