Does Diversification Cause the "Diversification Discount"?
Using recent econometric developments about causal inference, I examine whether diversification destroys value. I estimate the value effect of diversification by matching diversifying and single-segment firms on their propensity score––the predicted values from a probit model of the propensity to diversify. I also use Heckman’s (1979) two-stage estimator for comparison purposes. I find that on average, diversification does not destroy value. This finding is robust to the choice of estimator, sample, measures of excess value, and specification.
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Volume (Year): 33 (2004)
Issue (Month): 2 (Summer)
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