The Post-Announcement Performance of Diversifying Firms

Abstract

We apply the Fama-French three factor model to returns from a sample of specialized firms that announced an economic diversifying event over the period from 1978 through 1992. In addition to full-sample results, we report results for sub-samples of firms that refocus within 60 months of the diversification announcement, as well as for firms that were acquired, and firms that experienced financial distress. Finally, we compare long-run monthly post-announcement returns to pre-announcement returns. We find mixed evidence, with positive immediate impacts and only weak indications of negative long-run consequences.

Keywords: Diversification, merger, acquisition, valuation

JEL Classification: G30, G32, G34