Diversification: Value-Creating or Value-Destroying Strategy? Evidence from Using Panel Data
This paper provides evidence on how the diversification strategy impact on the firm value. Furthermore the paper studies the effect of the levels and types of diversification on the firm value. To achieve this aim, we propose a value model that incorporates the level and type of diversification. The estimation of the model by using the Generalized Method of Moments provides interesting results. Consistent with the value-destroying expectations, we find a reduction in the value of the diversified companies in the eurozone countries, however there is a non linear relationship between the diversification and value, giving rise to an optimal level of diversification. Moreover our results support that related diversification is more value-creating than non-related diversification. Additionally we test the effect of diversification of market valuation by focusing on the discount that diversified firms trade at, then a value destroying is achieved for the diversified companies in our sample, and we also have evidence on the hypothesis that relatedness moderates the value loss from diversification.
|Date of creation:||Jun 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +34 983 420000 ext. 4392
Fax: +34 983 423899
Web page: http://www3.uva.es/empresa/
More information through EDIRC
|Order Information:|| Postal: Av. Valle de Esgueva, 6. E-47011-Valladolid (Spain)|
When requesting a correction, please mention this item's handle: RePEc:ntd:wpaper:2007-04. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fortuna-Lindo, Jose M.)
If references are entirely missing, you can add them using this form.