45 Pages Posted: 7 Dec 2011 Last revised: 16 Jan 2012
Date Written: January 10, 2012
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: 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