Optimal Diversification

33 Pages Posted: 4 Sep 2002

See all articles by Joao F. Gomes

Joao F. Gomes

The Wharton School

Dmitry Livdan

University of California, Berkeley

Multiple version iconThere are 2 versions of this paper

Date Written: July 2002


In this Paper we show that the main empirical findings about firm diversification and performance are actually consistent with the optimal behavior of a firm that maximizes shareholder value. In our model, diversification allows a firm to explore better productive opportunities while taking advantage of economies of scale. The dynamic structure of our model allows us to examine several aspects of the relationship between firm diversification and performance in a very general setting.

Keywords: Diversification discount, size, corporate strategy, total factor productivity, diversification

JEL Classification: D21, G32, G34

Suggested Citation

Gomes, João F. and Livdan, Dmitry, Optimal Diversification (July 2002). Available at SSRN: https://ssrn.com/abstract=327801

João F. Gomes (Contact Author)

The Wharton School ( email )

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Dmitry Livdan

University of California, Berkeley ( email )

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Berkeley, CA 94720
United States
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