Does diversification destroy value? Evidence from the industry shocks
نویسندگان
چکیده
Does corporate diversification reduce shareholder value? Since firms endogenously choose to diversify, exogenous variation in diversification is necessary to draw inferences about the causal effect. We examine changes in the within-firm dispersion of industry investment, or ‘‘diversity’’. We find that exogenous changes in diversity, due to changes in industry investment, are negatively related to firm value. Thus diversification destroys value, consistent with the inefficient internal capital markets hypothesis. Measurement error does not cause this finding. We also find that exogenous changes in industry cash flow diversity are negatively related to firm value. r 2002 Elsevier Science S.A. All rights reserved. JEL classification: G34
منابع مشابه
Does diversification destroy value? Evidence from industry shocks
Does corporate diversification reduce shareholder value? Since firms endogenously choose to diversify, exogenous variation in diversification is necessary in order to draw inferences about the causal effect. We examine changes in the within-firm dispersion of industry investment, or “diversity.” We find that exogenous changes in diversity, due to changes in industry investment, are negatively r...
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