Corporate Diversification and the Price-Earnings Association

Ben-Hsien Bao and Da-Hsien Bao
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Ben-Hsien Bao: Hong Kong Polytechnic University, Hong Kong, China
Da-Hsien Bao: Rowan University, USA

Chapter 13 in Advances in Quantitative Analysis of Finance and Accounting, 2006, pp 299-326 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThis study investigates the effect of diversification on the association between firm value and earnings using both the levels and the changes analyses. Results show that: (1) the association between stock price and earnings for diversified firms is higher than that for focused firms, (2) the association is stronger when degree of diversification is higher, and (3) the association is improved significantly when quality of earnings is also considered.

Keywords: Earnings Management; Management Compensation; Option Theory and Application; Debt Management and Interest Rate Theory; Portfolio Diversification; Earnings Surprise (search for similar items in EconPapers)
Date: 2006
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