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Both Sides of Corporate Diversification: The Value Impacts of Geographic and Industrial Diversification

  • Gordon M. Bodnar
  • Charles Tang
  • Joseph Weintrop

This paper examines the effect of geographic and industrial diversification on firm value for a sample of over 20,000 firm-year observations of U.S. corporations from 1987-1993. Our" multivariate tests indicate the average value of a firm with international operations is 2.2% higher than comparable domestic single activity firms, while the average value of a firm with activities in multiple industrial segments is 5.4% lower than a portfolio of comparable focused domestic firms in similar activities. More importantly, we demonstrate that failure to control simultaneously for both dimensions of diversification results in over-estimation of the negative value impact of industrial diversification, but has little impact on estimates of the positive value impact of geographic diversification.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6224.

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Date of creation: Oct 1997
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Handle: RePEc:nbr:nberwo:6224
Note: IFM
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