 Corporate Diversification and Firm Value: Evidence from Post‐1997 Data*Xi He International Review of Finance, 2009, vol. 9, issue 4, 359-385 Abstract: In 1997, SFAS 131 established a new segment‐reporting standard for US public companies. Using measures of diversification based on the diversity in segment‐industry characteristics and controlling for endogeneity of the diversification decision, we document a diversification premium in our post‐1997 period. We find significant positive effects of cash flow diversity, leverage diversity and profitability diversity on excess value, consistent with the efficient internal capital market hypothesis. We also find that the size of the diversification premium in the post‐1997 data is negatively correlated with the degree of diversification and positively correlated with firm size. In contrast, we find that the pre‐1998 data typically generates a diversification discount, but the effect is statistically less significant when endogeneity is controlled for. Thus, the diversification discount documented in earlier studies can be an artifact of the pre‐1998 data or a failure to control for endogeneity. Date: 2009 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:irvfin:v:9:y:2009:i:4:p:359-385 Ordering information: This journal article can be ordered from Access Statistics for this article International Review of Finance is currently edited by Bruce D. Grundy, Naifu Chen, Ming Huang, Takao Kobayashi and Sheridan Titman More articles in International Review of Finance from International Review of Finance Ltd. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.