Does Corporate Diversification Reduce Firm Risk? Evidence from Diversifying Acquisitions

Randy I. Anderson (), John Stowe and Xuejing Xing ()
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Randy I. Anderson: Department of Finance, University of Central Florida, BA 427F, Orlando, FL 32816, USA
Xuejing Xing: Department of Accounting and Finance, University of Alabama in Huntsville, BAB 315, Huntsville, AL 35899, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2011, vol. 14, issue 03, 485-504

Abstract: The main purpose of this paper is to investigate empirically whether corporate diversification reduces the risk of the diversifying firm. We investigate this issue using a sample of diversifying acquisitions and various risk measures. We find that corporate diversification tends to decrease the risk of some firms but increase the risk of many others. On average corporate diversification does not lower firm risk. These findings call into question the notion that corporate diversification strictly reduces firm risk.

Keywords: Corporate diversification; systematic risk; firm-specific risk; total risk; acquisitions (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (10)

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DOI: 10.1142/S0219091511002214

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