Product Market Competition and the Value of Diversification

32 Pages Posted: 25 Feb 2020

Date Written: February 13, 2020

Abstract

I examine how industry concentration affects the value of diversification and explore the strategic value of agency problems for conglomerates that operate mainly in concentrated industries (concentrated conglomerates). I find that concentrated conglomerates have higher diversification values. Consistent with agency theories, agency problems, on average, cause greater diversification discount. In contrast, agency problems in concentrated conglomerates create strategic advantage and lead to higher valuations consistent with the notion that these conglomerates can credibly commit to their industries. Using tariff reductions as competitive shocks, I show that concentrated conglomerates experience significant valuation decline and respond aggressively to threats in less-competitive industries.

Keywords: diversification, diversification discount, product market competition, agency problems, tariff reduction

JEL Classification: D23, G18, G32, G34

Suggested Citation

Iskenderoglu, Cansu, Product Market Competition and the Value of Diversification (February 13, 2020). Available at SSRN: https://ssrn.com/abstract=3537479 or http://dx.doi.org/10.2139/ssrn.3537479

Cansu Iskenderoglu (Contact Author)

Ozyegin University ( email )

Kusbakisi Cd. No: 2
Altunizade, Uskudar
Istanbul, 34662
Turkey

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
17
Abstract Views
331
PlumX Metrics