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Corporate diversification and asymmetric information: evidence from stock market trading characteristics |
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| Institution: | 1. Department of Finance and Business Law, University of Wisconsin-Whitewater, Whitewater, WI 53190, USA;2. Department of Finance, East Carolina University, Greenville, NC 27858, USA;3. Department of Economics and Finance, The University of Texas Rio Grande Valley, Edinburg, TX 78539, USA;1. Booth School of Business, University of Chicago, 5807 S Woodlawn Ave, Chicago, IL 60637, United States;2. National Bureau of Economic Research, United States;3. London Business School, Regent’s Park, London NW1 4SA, United Kingdom |
| Abstract: | We examine the relation between firm diversification and asymmetric information empirically using metrics drawn from the market microstructure literature. We find that the average diversified firm in our sample has somewhat less severe asymmetric information problems than a similarly constructed portfolio of stand-alone firms chosen to approximate the segments of the conglomerate. We also find that the information asymmetry of diversified firms is very similar to that of individual focused firms that approximate the conglomerates along several dimensions not including industry composition. We conclude that greater diversification is not on average associated with increased asymmetric information. |
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