The valuation discount of multi-segment firms in Australia |
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| Authors: | Grant Fleming Barry Oliver Steven Skourakis |
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| Institution: | Wilshire Australia, Canberra, Australia and the School of Finance and Applied Statistics, Australian National University, ACT, Australia 0200;School of Finance and Applied Statistics, Australian National University, ACT, Australia 0200;Deloitte Touche Tohmatsu, Sydney, Australia |
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| Abstract: | This paper refines the Berger and Ofek (1995) methodology to estimate the valuation discount of multi-segment firms in Australia between 1988 and 1998. Evidence is found that based on earnings before tax, the sample of multi-segment firms traded at a 29 per cent greater discount than a comparable portfolio of single segment firms over the sample period. To explain the results further analysis shows that the valuation discount was driven by poorly performing multi-segment firms rather than multi-segment firms per se. This raises questions about studies that conclude that diversification is value destroying. |
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| Keywords: | Ownership structure Diversification |
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