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The Impact of Unrelated Diversification on Firm Value

Meijer, J.H.S. (2015) The Impact of Unrelated Diversification on Firm Value.

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Abstract:This thesis examines the impact of unrelated diversification on firm value for both German and Dutch publicly listed firms. I find that unrelated diversified German conglomerates possess a higher relative value of 0.5% compared to their related diversified counterparts; for the Dutch sample, the results were too inconsistent to draw conclusions with respect to the differences between related and unrelated diversified firms. Besides the differences with respect to the valuation effect between related and unrelated diversification, this thesis also contributes to literature by directly investigating if corporate diversification in general is value reducing or enhancing, and whether this valuation effect is more or less pronounced during the recent financial crisis (2007-2009). I find that as well German and Dutch conglomerates trade, compared to their standalone counterparts, on a relative lower value of on average 20%. This result supports part of literature arguing that diversified firms trade indeed at a discount compared to standalones. With respect to the recent financial crisis (2007-2009), I find that this period can have both positive as negative effects on the firm value of German and Dutch conglomerates (related & unrelated). Conglomerates from both countries can have a relative higher or lower value compared to their standalone counterparts, depending on the choice of method to assess the relative value of as well diversified and standalone firms.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:83 economics, 85 business administration, organizational science
Programme:Business Administration MSc (60644)
Link to this item:http://purl.utwente.nl/essays/67777
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