Is There a Diversification Discount? Diversification, Payout Policy, and the Value of a Firm.

Mackey, Tyson B.; Barney, Jay B.

doi:10.2139/ssrn.772806

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Is There a Diversification Discount? Diversification, Payout Policy, and the Value of a Firm.

10 Pages Posted: 16 Aug 2005

See all articles by Tyson B. Mackey

Tyson B. Mackey

Clarkson University - School of Business; University of Utah - David Eccles School of Business; Ohio State University (OSU) - Human Resource Research

Jay B. Barney

Ohio State University (OSU) - Human Resource Research

Date Written: June 2005

Abstract

Empirical studies that account for the endogeneity of the diversification decision must also account for a firm's alternative uses for its free cash flow. This study examines dividends and stock repurchases in tandem with the firm's diversification decision and finds that the factors that lead a firm to diversify also make it more likely to pay a dividend. Controlling for this relationship, the diversification premium found by recent research correcting for endogeneity turns back into a discount.

Keywords: Diversification, payout policy

JEL Classification: G34, G35

Suggested Citation: Suggested Citation

Mackey, Tyson B. and Barney, Jay, Is There a Diversification Discount? Diversification, Payout Policy, and the Value of a Firm. (June 2005). Available at SSRN: https://ssrn.com/abstract=772806 or http://dx.doi.org/10.2139/ssrn.772806