Dissecting Conglomerate Valuations

48 Pages Posted: 22 Nov 2015 Last revised: 29 Mar 2021

See all articles by Oliver Boguth

Oliver Boguth

Arizona State University (ASU) - Finance Department

Ran Duchin

Boston College - Carroll School of Management

Mikhail Simutin

University of Toronto - Rotman School of Management

Date Written: March 29, 2021

Abstract

We develop a new method to estimate Tobin's qs of conglomerate divisions without relying on standalone firms. Divisional qs differ considerably from those of standalone firms across industries, over time, and in their sensitivity to economic shocks. The differences are explained by intra-conglomerate covariance structures and access to internal capital markets that mitigate external financing frictions. Consequently, the qs capture variation in the allocation of assets in the economy: within firms through internal capital markets, and across focused and diversified firms through diversifying acquisitions. Overall, our method provides opportunities to study the economic mechanisms that explain corporate diversification.

Keywords: boundaries of the firm, segment valuation, conglomerate investment, internal capital markets, quantile regressions

JEL Classification: G32, G34

Suggested Citation

Boguth, Oliver and Duchin, Ran and Simutin, Mikhail, Dissecting Conglomerate Valuations (March 29, 2021). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2693847 or http://dx.doi.org/10.2139/ssrn.2693847

Oliver Boguth

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Ran Duchin

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Mikhail Simutin (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/simutin

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