Corporate Diversification and Firm Value: A Survey of Recent Literature

45 Pages Posted: 7 Dec 2011 Last revised: 16 Jan 2012

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.

Multiple version iconThere are 2 versions of this paper

Date Written: 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.

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

JEL Classification: G11, G34, L25

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: https://ssrn.com/abstract=1968977 or http://dx.doi.org/10.2139/ssrn.1968977

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

Paper statistics

Downloads
863
Rank
21,163
Abstract Views
3,399