Dissecting Conglomerates

50 Pages Posted: 22 Nov 2015 Last revised: 24 Apr 2018

See all articles by Oliver Boguth

Oliver Boguth

Arizona State University (ASU) - Finance Department

Ran Duchin

University of Washington - Michael G. Foster School of Business

Mikhail Simutin

University of Toronto - Rotman School of Management

Date Written: April 23, 2018

Abstract

We develop a new method to estimate Tobin’s qs of conglomerate divisions without relying on standalone firms. Divisional qs differ considerably from qs of standalone firms and, consistent with theories of corporate diversification, are less volatile and less sensitive to macroeconomic shocks. In contrast to prior evidence based on standalone qs, divisional investment is highly sensitive to divisional qs. This sensitivity disappears after a division is spun-off into a standalone firm. Moreover, divisional qs predict both the volume and announcement returns of diversifying acquisitions. Overall, our estimates provide new opportunities to study conglomeration and internal capital allocation.

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 Conglomerates (April 23, 2018). Rotman School of Management Working Paper No. 2693847. 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

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
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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