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Corporate Diversification and Firm Value: A Survey of Recent Literature

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Listed:
  • Stefan Erdorf

    (University of Cologne)

  • Thomas Hartmann-Wendels

    (University of Cologne)

  • Nicolas Heinrichs

    (University of Cologne)

  • Michael Matz

    (Bain & Company)

Abstract

We survey the recent literature on corporate diversification. How does corporate diversification influence firm value? Does it create or destroy value? While, until the beginning of this century, the predominant thinking among researchers and practitioners was that corporate diversification leads to an average discount on firm value, several studies cast doubt on the diversification discount. In the last decade, there has been no clear consensus of whether there is a discount or even a premium on firm value. However, the recent literature concludes that the effect on value differs from firm to firm, and that corporate diversification alone does not drive the discount or premium. Rather, the effect is heterogeneous across certain industry settings, economic conditions, and governance structures.

Suggested Citation

  • Stefan Erdorf & Thomas Hartmann-Wendels & Nicolas Heinrichs & Michael Matz, 2012. "Corporate Diversification and Firm Value: A Survey of Recent Literature," Cologne Graduate School Working Paper Series 03-01, Cologne Graduate School in Management, Economics and Social Sciences.
  • Handle: RePEc:cgr:cgsser:03-01
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    References listed on IDEAS

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    More about this item

    Keywords

    corporate diversification; firm valuation; internal capital markets; discount; premium;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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