Corporate Diversification, Asymmetric Information, and Firm Value: Evidence from Stock Market Trading Characteristics

52 Pages Posted: 9 Mar 2000

See all articles by Shawn Thomas

Shawn Thomas

University of Pittsburgh - Katz Graduate School of Business

C. Edward Fee

Tulane University - A.B. Freeman School of Business

Abstract

There is no clear theoretical consensus about the overall effect of firm diversification on the magnitude of asymmetric information problems that firms face. We therefore compare stock market based measures of asymmetric information for diversified firms with those they could reasonably expect to exhibit if they were split along industry lines into separately traded entities. We find that approximately 74% of the diversified firms in our sample have less severe asymmetric information problems as conglomerates than they could expect to experience as separately traded pure-play firms. We also find evidence that diversified firms with low levels of information asymmetry trade at significant diversification premiums while diversified firms with high levels of information asymmetry trade at significant diversification discounts.

JEL Classification: G32, G34

Suggested Citation

Thomas, Shawn and Fee, C. Edward, Corporate Diversification, Asymmetric Information, and Firm Value: Evidence from Stock Market Trading Characteristics. Available at SSRN: https://ssrn.com/abstract=204908 or http://dx.doi.org/10.2139/ssrn.204908

Shawn Thomas (Contact Author)

University of Pittsburgh - Katz Graduate School of Business ( email )

246 Mervis Hall
Pittsburgh, PA 15260
United States
412-648-1648 (Phone)
412-648-1693 (Fax)

HOME PAGE: http://www.pitt.edu/~shthomas/index.htm

C. Edward Fee

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
1,257
Abstract Views
4,814
rank
17,097
PlumX Metrics