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Both Sides of Corporate Diversification: The Value Impacts of Geographic and Industrial Diversification

37 Pages Posted: 20 Apr 2000  

Gordon M. Bodnar

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS)

Joseph Weintrop

City University of New York - Baruch College - Stan Ross Department of Accountancy

Charles Tang

Pace University - Lubin School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: December 1999

Abstract

This paper examines the effect of geographic and industrial diversification on firm value for a sample of over 31,000 firm-year observations of U.S. corporations from 1984 - 1997. Consistent with the predictions of most theories, we find the value of a firm with international operations is 2.7% higher than a comparable single-activity domestic firm, while the value of a multiactivity firm is 6.0% lower than a comparable portfolio of single-activity domestic firms. In addition, we demonstrate the existence of an omitted variable bias in estimating the value effect of industrial diversification when failing to account for geographic diversification when estimating. Sources of the value effects of both dimensions of diversification are also investigated.

JEL Classification: F30, G12

Suggested Citation

Bodnar, Gordon M. and Weintrop, Joseph and Tang, Charles, Both Sides of Corporate Diversification: The Value Impacts of Geographic and Industrial Diversification (December 1999). Available at SSRN: https://ssrn.com/abstract=217869 or http://dx.doi.org/10.2139/ssrn.217869

Gordon M. Bodnar (Contact Author)

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036
United States
202-663-7731 (Phone)
202-663-7718 (Fax)

Joseph Weintrop

City University of New York - Baruch College - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
212-802-6443 (Phone)
212-802-6423 (Fax)

Charles Ya B. Tang

Pace University - Lubin School of Business ( email )

1 Pace Plaza
New York, NY 10038-1502
United States

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