The Diversification Puzzle: Revisiting the Value Impact of Diversification for UK Firms

Abstract

The literature on value impact of diversification decisions has focused on US firms and has examined "industrial" rather than "geographic diversification". This study exploits the Lang and Stulz (1994) , Berger and Ofek (1995) and Bodnar et al. (1999) methodologies and controls for "form of" diversification in assessing value impact for a sample of UK firms, for the period 1996-2000. Using an "adjusted value metric" that controls for industry effects, we report a significant and perverse geographic discount of 14%, and no systematic industrial value impact, suggesting that sector characteristics may be a significant driver of diversification choice for UK firms. Copyright 2006 The Authors Journal compilation (c) 2006 Blackwell Publishing Ltd.

Organizational Form and the Economic Impact of Corporate New Product Strategies

“…The t ‐values are computed with heteroskedasticity‐consistent standard errors (White, 1980). Following Berger and Ofek (1995), Comment and Jarrell (1995), Denis et al (1997), Campa and Kedia (2002) and Barnes and Hardie‐Brown (2006), I use a dummy variable for corporate focus that is equal to one for focused firms (i.e. those with a single business segment) and zero for diversified firms (i.e.…”

Trends in corporate diversification

“…In order to correct for any survivor bias, the change is measured using firms that were present in both years * The significance for the change in the proportion for 10% level or better ** The significance for the change in the proportion for 5% level or better *** The significance for the change in the proportion for 1% level or better change from the 1980s to the 1990s was a result of changing firm characteristics or of an overall change in the environment. As noted by Campa and Kedia (2002), Hyland and Diltz (2002), Villalonga (2004), and Barnes and Hardie-Brown (2006), the decision to diversify is dependent on firm characteristics. In order to specifically address this issue, I estimate logistic regressions predicting the decision to diversify as a function of firm characteristics and time dummies.…”

The Impact of Strategic Investment Choices on Post‐Issue Operating Performance and Survival of US IPO Firms

“…While a generally negative relation between corporate diversification and value-based measures has been documented in the literature (Lang and Stulz, 1994;Berger and Ofek, 1995;Comment and Jarrell, 1995;and Barnes and Hardie-Brown, 2006), the evidence with accounting-based measures is less conclusive (Chatterjee and Wernerfelt, 1991). Some recent studies, however, document a negative relation between diversification and accounting-based performance measures.…”