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http://ssrn.com/abstract=1968977
 
 

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Corporate Diversification and Firm Value: A Survey of Recent Literature


Stefan Erdorf


University of Cologne - Graduate School of Risk Management

Thomas Hartmann-Wendels


University of Cologne - Department of Banking

Nicolas Heinrichs


University of Cologne - Graduate School of Risk Management

Michael Matz


Bain & Company Germany Inc.

January 10, 2012


Abstract:     
We survey the recent literature on corporate diversification. How does corporate diversification influence firm value? Does it create or destroy value? While, until the beginning of this century, the predominant thinking among researchers and practitioners was that corporate diversification leads to an average discount on firm value, several studies cast doubt on the diversification discount. In the last decade, there has been no clear consensus of whether there is a discount or even a premium on firm value. However, the recent literature concludes that the effect on value differs from firm to firm, and that corporate diversification alone does not drive the discount or premium. Rather, the effect is heterogeneous across certain industry settings, economic conditions, and governance structures.

Number of Pages in PDF File: 45

Keywords: corporate diversification, firm valuation, internal capital markets, discount, premium

JEL Classification: G11, G34, L25

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Date posted: December 7, 2011 ; Last revised: January 16, 2012

Suggested Citation

Erdorf, Stefan and Hartmann-Wendels, Thomas and Heinrichs, Nicolas and Matz, Michael, Corporate Diversification and Firm Value: A Survey of Recent Literature (January 10, 2012). Available at SSRN: http://ssrn.com/abstract=1968977 or http://dx.doi.org/10.2139/ssrn.1968977

Contact Information

Stefan Erdorf (Contact Author)
University of Cologne - Graduate School of Risk Management ( email )
Albertus-Magnus-Platz
Cologne, D-50923
Germany
Thomas Hartmann-Wendels
University of Cologne - Department of Banking ( email )
Albertus-Magnus-Platz
D-50923 Cologne
Germany
Nicolas Heinrichs
University of Cologne - Graduate School of Risk Management ( email )
Albertus-Magnus-Platz
Cologne, D-50923
Germany
Michael Matz
Bain & Company Germany Inc. ( email )
Bleichstr. 14
40211 Düsseldorf
Germany
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