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

39 Pages Posted: 19 Jul 2000 Last revised: 7 Oct 2010

See all articles by Gordon M. Bodnar

Gordon M. Bodnar

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

Charles Tang

Pace University - Lubin School of Business

Joseph Weintrop

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

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Date Written: October 1997

Abstract

This paper examines the effect of geographic and industrial diversification on firm value for a sample of over 20,000 firm-year observations of U.S. corporations from 1987-1993. Our" multivariate tests indicate the average value of a firm with international operations is 2.2% higher than comparable domestic single activity firms, while the average value of a firm with activities in multiple industrial segments is 5.4% lower than a portfolio of comparable focused domestic firms in similar activities. More importantly, we demonstrate that failure to control simultaneously for both dimensions of diversification results in over-estimation of the negative value impact of industrial diversification, but has little impact on estimates of the positive value impact of geographic diversification.

Suggested Citation

Bodnar, Gordon M. and Tang, Charles Ya B. and Weintrop, Joseph, Both Sides of Corporate Diversification: The Value Impacts of Geographic and Industrial Diversification (October 1997). NBER Working Paper No. w6224. Available at SSRN: https://ssrn.com/abstract=225982

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
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202-663-7731 (Phone)
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Charles Ya B. Tang

Pace University - Lubin School of Business ( email )

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

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)

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