Abstract

http://ssrn.com/abstract=2132676
 


 



The Effect of Institutional Factors on the Value of Corporate Diversification


Venkat Kuppuswamy


University of North Carolina Kenan-Flagler Business School

George Serafeim


Harvard University - Harvard Business School

Belen Villalonga


New York University (NYU) - Leonard N. Stern School of Business

August 10, 2012

Advances in Strategic Management, Volume 32: Finance and Strategy, August 2014

Abstract:     
Using a large sample of diversified firms from 38 countries we investigate the influence of several national-level institutional factors or ‘institutional voids’ on the value of corporate diversification. Specifically, we explore whether the presence of frictions in a country’s capital markets, labor markets, and product markets, affect the excess value of diversified firms. We find that the value of diversified firms relative to their single-segment peers is higher in countries with less efficient capital and labor markets, but find no evidence that product market efficiency affects the relative value of diversification. These results provide support for the theory of internal capital markets that argues that internal capital allocation would be relatively more beneficial in the presence of frictions in the external capital markets. In addition, the results show that diversification can be beneficial in the presence of frictions in the labor market.

Number of Pages in PDF File: 43

Keywords: corporate diversification, industrial diversification, labor market efficiency, product market competition, competition, capital market efficiency, country competitiveness, conglomerates

JEL Classification: G4, M1, M4

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Date posted: August 21, 2012 ; Last revised: September 10, 2014

Suggested Citation

Kuppuswamy, Venkat and Serafeim, George and Villalonga, Belen, The Effect of Institutional Factors on the Value of Corporate Diversification (August 10, 2012). Advances in Strategic Management, Volume 32: Finance and Strategy, August 2014. Available at SSRN: http://ssrn.com/abstract=2132676 or http://dx.doi.org/10.2139/ssrn.2132676

Contact Information

Venkat Kuppuswamy
University of North Carolina Kenan-Flagler Business School ( email )
Chapel Hill, NC 27599
United States

George Serafeim (Contact Author)
Harvard University - Harvard Business School ( email )
381 Morgan Hall
Boston, MA 02163
United States
HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=15705
Belen Villalonga
New York University (NYU) - Leonard N. Stern School of Business ( email )
40 West 4th Street
New York, NY NY 10012
United States
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