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Tobin's q, Corporate Diversification, and Firm Performance

  • Lang, Larry H P
  • Stulz, Rene M

In this paper, the authors show that Tobin's q and firm diversification are negatively related throughout the 1980s. This negative relation holds for different diversification measures and when they control for other known determinants of q. Further, diversified firms have lower q's than comparable portfolios of pure-play firms. Firms that choose to diversify are poor performers relative to firms that do not but there is only weak evidence that they have lower q's than the average firm in their industry. The authors find no evidence supportive of the view that diversification provides firms with a valuable intangible asset. Copyright 1994 by University of Chicago Press.

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 102 (1994)
Issue (Month): 6 (December)
Pages: 1248-80

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Handle: RePEc:ucp:jpolec:v:102:y:1994:i:6:p:1248-80
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  1. Donaldson, Gordon, 1990. "Voluntary restructuring : The case of General Mills," Journal of Financial Economics, Elsevier, vol. 27(1), pages 117-141, September.
  2. John, Kose & Lang, Larry H P & Netter, Jeffry, 1992. " The Voluntary Restructuring of Large Firms in Response to Performance Decline," Journal of Finance, American Finance Association, vol. 47(3), pages 891-917, July.
  3. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  4. Weston, J Fred & Smith, Keith V & Shrieves, Ronald E, 1972. "Conglomerate Performance Using the Capital Asset Pricing Model," The Review of Economics and Statistics, MIT Press, vol. 54(4), pages 357-63, November.
  5. Kaplan, Steven N & Weisbach, Michael S, 1992. " The Success of Acquisitions: Evidence from Divestitures," Journal of Finance, American Finance Association, vol. 47(1), pages 107-38, March.
  6. Schwert, G. William, 1983. "Size and stock returns, and other empirical regularities," Journal of Financial Economics, Elsevier, vol. 12(1), pages 3-12, June.
  7. Randall Morck & Andrei Shleifer & Robert W. Vishny, 1989. "Do Managerial Objectives Drive Bad Acquisitions?," NBER Working Papers 3000, National Bureau of Economic Research, Inc.
  8. Frank R. Lichtenberg, 1990. "Industrial De-Diversification and its Consequences for Productivity," NBER Working Papers 3231, National Bureau of Economic Research, Inc.
  9. Lichtenberg, Frank R, 1991. "The Managerial Response to Regulation of Financial Reporting for Segments of a Business Enterprise," Journal of Regulatory Economics, Springer, vol. 3(3), pages 241-49, September.
  10. Morck, R. & Yeung, B., 1991. "Why Investors Value Multinationality," Working Papers 282, Research Seminar in International Economics, University of Michigan.
  11. Lang, Larry H. P. & Stulz, ReneM. & Walkling, Ralph A., 1991. "A test of the free cash flow hypothesis*1: The case of bidder returns," Journal of Financial Economics, Elsevier, vol. 29(2), pages 315-335, October.
  12. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  13. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  14. Peltzman, Sam, 1977. "The Gains and Losses from Industrial Concentration," Journal of Law and Economics, University of Chicago Press, vol. 20(2), pages 229-63, October.
  15. Jensen, Michael C. & Ruback, Richard S., 1983. "The market for corporate control : The scientific evidence," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 5-50, April.
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