Is Corporate Diversification Beneficial in Emerging Markets?

Karl V. Lins

University of Utah - Department of Finance

Henri Servaes

London Business School; Centre for Economic Policy Research (CEPR)

March 2, 2002

Financial Management, Summer 2002

Using a sample of over 1000 firms from seven emerging markets in 1995, we find that diversified firms trade at a discount of approximately 7% compared to single-segment firms. Diversified firms are also less profitable than single-segment firms, but lower profitability only explains part of the discount. We find a discount only for those firms that are part of industrial groups, and for diversified firms with management ownership concentration between 10% and 30%. The discount is most severe when management control rights substantially exceed their cash flow rights. Our results do not support internal capital market efficiency in economies with severe capital market imperfections.

JEL Classification: G32, G34

Not Available For Download

Date posted: May 21, 2002  

Suggested Citation

Lins, Karl V. and Servaes, Henri, Is Corporate Diversification Beneficial in Emerging Markets? (March 2, 2002). Financial Management, Summer 2002. Available at SSRN: http://ssrn.com/abstract=304624

Contact Information

Karl V. Lins (Contact Author)
University of Utah - Department of Finance ( email )
David Eccles School of Business
Salt Lake City, UT 84112
United States
801-585-3171 (Phone)
801-581-7214 (Fax)
Henri Servaes
London Business School ( email )
Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
+44 20 7000 8268 (Phone)
+44 20 7000 8201 (Fax)
HOME PAGE: http://faculty.london.edu/hservaes/
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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