Is Corporate Diversification Beneficial in Emerging Markets?

42 Pages Posted: 26 Sep 2001

See all articles by Karl V. Lins

Karl V. Lins

University of Utah - Department of Finance

Henri Servaes

London Business School; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2001


Using a sample of over one thousand firms from seven emerging markets (Hong Kong, India, Indonesia, Malaysia, Singapore, South Korea, and Thailand) at the end of 1995, we find that diversified firms trade at a discount of approximately seven percent compared to single-segment firms. Diversified firms are also less profitable than single-segment firms, but lower profitability only explains part of the discount. We find a discount only for firms that are part of industrial groups, and for diversified firms with management ownership concentration between 10 percent and 30 percent; there is no evidence of a discount for firms with lower or higher ownership concentration. The discount is most severe when management control rights substantially exceed their cash flow rights. Our results provide little evidence of internal capital market efficiency in economies with severe capital market imperfections.

Keywords: Corporate diversification, agency costs, governance, emerging markets

JEL Classification: G32, G34

Suggested Citation

Lins, Karl V. and Servaes, Henri, Is Corporate Diversification Beneficial in Emerging Markets? (July 2001). Available at SSRN: or

Karl V. Lins (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-585-3171 (Phone)
801-581-7214 (Fax)

Henri Servaes

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
+44 20 7000 8268 (Phone)
+44 20 7000 8201 (Fax)


Centre for Economic Policy Research (CEPR)

United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics