Journal of Financial Economics Vol. 37 No. 1 1995

Diversification's effect on firm value

Philip G. Berger¹; Eli Ofek²

¹ University of Pennsylvania · ² New York University

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.

DOI

10.1016/0304-405x(94)00798-6

Volume

37

Issue

1

Pages

39-65

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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