Tobin's Q, Corporate Diversification and Firm Performance

Posted: 24 Oct 1999

See all articles by Larry H.P. Lang

Larry H.P. Lang

The Chinese University of Hong Kong (CUHK) - Department of Finance

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

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Abstract

In this paper, we show that Tobin's q and firm diversification are negatively related throughout the 1980s. This negative relation holds for different diversification measures and when we control for other known determinants of q. Further, diversified firms have lower q's than portfolios of pure-play firms active in the same industries as the divisions of the diversified firms. In our sample, the firms that choose to diversify are poor performers relative to firms that do not, but there is only weak evidence that they have lower q's than the firms in their industry. We find no evidence supportive of the view that diversification provides firms with a valuable intangible asset.

JEL Classification: G3, G31

Suggested Citation

Lang, Hsien Ping Larry and Stulz, Rene M., Tobin's Q, Corporate Diversification and Firm Performance. Available at SSRN: https://ssrn.com/abstract=5462

Hsien Ping Larry Lang

The Chinese University of Hong Kong (CUHK) - Department of Finance ( email )

Shatin, N.T.
Hong Kong
+85 2 2609 7761 (Phone)
+85 2 2603 6586 (Fax)

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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