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Does corporate diversification reduce value in high technology firms?

Nilakshi Borah (), Liu Pan (), Jung Chul Park () and Nan Shao ()
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Nilakshi Borah: University of Wisconsin-La Crosse
Liu Pan: Financial Research Institute of CCTV Securities Information Channel
Jung Chul Park: University of South Florida
Nan Shao: Henan University of Economics and Law

Review of Quantitative Finance and Accounting, 2018, vol. 51, issue 3, 683-718

Abstract: Abstract We find that firm value is reduced via industrial diversification and this reduction in value depends upon a firm’s technology intensity. We consider that asymmetric information problems are more severe in technology intensive industries and find that high tech industry firms present distinctly larger value reduction when compared to low tech industry firms. The negative valuation effect is greater for firms that have a relatively larger amount of intangible assets and greater R&D capital. We determine that our findings are robust to different estimation methods and alternative excess value measures.

Keywords: Diversification discount; High tech industries; Information asymmetry (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Date: 2018
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