Abstract
We estimate diversification's effect on firm value by imputing stand-alone values for individual business segments. Comparing the sum of these stand-alone values to the firm's actual value implies a 13% to 15% average value loss from diversification during 1986–1991. The value loss is smaller when the segments of the diversified firm are in the same two-digit SIC code. We find that overinvestment and cross-subsidization contribute to the value loss. The loss is reduced modestly by tax benefits of diversification.
Keywords
Diversification (marketing strategy)Enterprise valueValue (mathematics)EconomicsMicroeconomicsSubsidyBusinessEconometricsStatisticsFinanceMathematicsMarket economyMarketing
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Publication Info
- Year
- 1995
- Type
- article
- Volume
- 37
- Issue
- 1
- Pages
- 39-65
- Citations
- 3145
- Access
- Closed
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Cite This
Philip G. Berger,
Eli Ofek
(1995).
Diversification's effect on firm value.
Journal of Financial Economics
, 37
(1)
, 39-65.
https://doi.org/10.1016/0304-405x(94)00798-6
Identifiers
- DOI
- 10.1016/0304-405x(94)00798-6