Tobin's Q, Corporate Diversification and Firm Performance

44 Pages Posted: 27 Apr 2000 Last revised: 5 Jan 2002

See all articles by Larry H.P. Lang

Larry H.P. Lang

The Chinese University of Hong Kong (CUHK) - Department of Finance

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: June 1993

Abstract

In this paper, we show that Tobin's q and firm diversification are negatively related. This negative relation holds for different diversification measures and when we control for other known determinants of q. We show further that diversified firms have lower q's than equivalent portfolios of specialized firms. This negative relation holds throughout the 1980s in our sample. Finally, it holds for firms that have kept their number of segments constant over a number of years as well as for firms that have not. In our sample, firms that increase their number of segments have lower q's than firms that keep their number of segment constant. Our evidence is consistent with the view that firms seek growth through diversification when they have exhausted internal growth opportunities. We fail to find evidence supportive of the view that diversification provides firms with a valuable intangible asset

Suggested Citation

Lang, Hsien Ping Larry and Stulz, Rene M., Tobin's Q, Corporate Diversification and Firm Performance (June 1993). NBER Working Paper No. w4376. Available at SSRN: https://ssrn.com/abstract=227019

Hsien Ping Larry Lang (Contact Author)

The Chinese University of Hong Kong (CUHK) - Department of Finance ( email )

Shatin, N.T.
Hong Kong
+85 2 2609 7761 (Phone)
+85 2 2603 6586 (Fax)

Rene M. Stulz

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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