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Corporate Diversification and Firm Value: A Survey of Recent Literature

Stefan Erdorf (), Thomas Hartmann-Wendels, Nicolas Heinrichs () and Michael Matz
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Stefan Erdorf: University of Cologne
Thomas Hartmann-Wendels: University of Cologne
Nicolas Heinrichs: University of Cologne
Michael Matz: Bain & Company

No 03-01, Cologne Graduate School Working Paper Series from Cologne Graduate School in Management, Economics and Social Sciences

Abstract: We survey the recent literature on corporate diversification. How does corporate diversification influence firm value? Does it create or destroy value? While, until the beginning of this century, the predominant thinking among researchers and practitioners was that corporate diversification leads to an average discount on firm value, several studies cast doubt on the diversification discount. In the last decade, there has been no clear consensus of whether there is a discount or even a premium on firm value. However, the recent literature concludes that the effect on value differs from firm to firm, and that corporate diversification alone does not drive the discount or premium. Rather, the effect is heterogeneous across certain industry settings, economic conditions, and governance structures.

Keywords: corporate diversification; firm valuation; internal capital markets; discount; premium (search for similar items in EconPapers)
JEL-codes: G11 G34 L25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-his
Date: 2012-01
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