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Diversification and heterogeneity of investor beliefs

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  • Jiao, Jie
  • Qiu, Bin
  • Yan, An

Abstract

In the paper, we find that diversification reduces the heterogeneity of investor beliefs on firm value. We obtain this finding by comparing not only between diversified and focused firms but also between diversifying and non-diversifying mergers. We also find that the reduced heterogeneity of investor beliefs on a diversified firm relative to its focused peers is negatively associated with its contemporaneous excess value and positively associated with its future excess value. Overall, our results contribute to the understanding about how corporate organization structure affects the heterogeneity of investor beliefs and further firm value.

Suggested Citation

  • Jiao, Jie & Qiu, Bin & Yan, An, 2013. "Diversification and heterogeneity of investor beliefs," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3435-3453.
    • Handle: RePEc:eee:jbfina:v:37:y:2013:i:9:p:3435-3453
    DOI: 10.1016/j.jbankfin.2013.04.028
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    More about this item

    Keywords

    Diversification; Heterogeneity of investor beliefs; Excess value;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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