The shareholder value and diversification puzzle

Federico Marinelli (silvia@iese.edu)
Additional contact information
Federico Marinelli: IESE Business School, Postal: Research Division, Av Pearson 21, 08034 Barcelona, SPAIN

No D/853, IESE Research Papers from IESE Business School

Abstract: Diversified firms are supposed to be valued less than the sum of their parts because of the diversification discount, but subsequent research has found that the relationship between diversification and shareholder value is not causal. We analyze the relationship between diversification and shareholder value taking into consideration the persistence of profit over the long term. We offer new insights and a complementary view for investors: single segment firms do not generate more shareholder value than diversified firms, and in some situations the opposite is true. Moreover, we find that the relationship between diversification and shareholder value is not causal, but clearly depends on the capacity of the firm to generate a long-term persistent outstanding performance. Finally, we demonstrate that in comparison to diversified firms, single segment firms might be considered "growth stocks" whose return is explained by higher volatility and a higher size premium.

Keywords: diversification; performance persistence; shareholder value; conditional variance (search for similar items in EconPapers)
Pages: 46 pages
Date: 2010-04-01
New Economics Papers: this item is included in nep-bec
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.iese.edu/research/pdfs/DI-0853-E.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebg:iesewp:d-0853

Access Statistics for this paper

More papers in IESE Research Papers from IESE Business School IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN. Contact information at EDIRC.
Bibliographic data for series maintained by Noelia Romero (academicmaterial@iese.edu).