Disclosure Quality and the Excess Value of Diversification

60 Pages Posted: 28 Oct 2002

Date Written: October 2002

Abstract

For a sample of U.S. firm years spanning the time period 1980 through 1996 we document a positive association between the excess value of diversification as defined by Berger and Ofek [1995] and security analyst ratings of voluntary disclosure as developed by the Association for Investment Management and Research (i.e., AIMR rankings). Our results are not attributable to differences in proxies for firm performance or information environment. Moreover, we find no relation between the excess values of single segment firms and their AIMR rankings. Taken together, these phenomena suggest that disclosure plays a monitoring role in disciplining management's operating decisions. We also examine an alternative proxy for disclosure quality that captures the degree of segment disaggregation, and document a positive association between this measure and excess value. Additional analyses of the association between non-market based measures of performance (i.e., return on assets) and our disclosure proxies provide mixed support for the monitoring effect hypothesis.

Keywords: diversification, voluntary disclosure, governance, valuation

JEL Classification: M41, M45, G34

Suggested Citation

Bens, Daniel A. and Monahan, Steven J., Disclosure Quality and the Excess Value of Diversification (October 2002). Available at SSRN: https://ssrn.com/abstract=340720 or http://dx.doi.org/10.2139/ssrn.340720

Daniel A. Bens

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

Steven J. Monahan (Contact Author)

INSEAD ( email )

Boulevard de Constance
PMLS 1.24
F-7705 Fontainebleau Cedex, 77305
France
+33 1 60 72 92 14 (Phone)
+33 1 60 72 92 53 (Fax)

HOME PAGE: http://www.insead.edu/facultyresearch/faculty/profiles/smonahan/

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