Corporate diversification and firm value: a survey of recent literature |
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Authors: | Stefan Erdorf Thomas Hartmann-Wendels Nicolas Heinrichs Michael Matz |
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Institution: | 1. Graduate School of Risk Management, University of Cologne, Albertus-Magnus-Platz, 50923, Cologne, Germany 2. Department of Bank Management, University of Cologne, Albertus-Magnus-Platz, 50923, Cologne, Germany 3. Ernst & Young Real Estate GmbH, Rothenbaumchaussee 78, 20148, Hamburg, Germany 4. Bain & Company Germany Inc., Speditionstrasse 21, 40221, Duesseldorf, Germany
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Abstract: | We survey the recent literature on corporate diversification. How does corporate diversification influence firm value? Does it create or destroy value? Until the beginning of this century, the predominant thinking among researchers and practitioners was that corporate diversification leads to an average discount on firm value; however, several studies cast doubt on the diversification discount. In the last decade, there has been no clear consensus as to whether there is a discount or even a premium on firm value. Recent literature concludes that the effect on value differs from firm to firm and that corporate diversification alone does not drive the discount or premium; rather, the effect is heterogeneous across certain industry settings, economic conditions, and governance structures. |
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