Diversification, Refocusing, and Firm Value

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  • Diversification, Refocusing, and Firm Value Book Detail

  • Author : Gonul Colak
  • Release Date : 2010
  • Publisher :
  • Genre :
  • Pages : 27
  • ISBN 13 :
  • File Size : 33,33 MB

Diversification, Refocusing, and Firm Value by Gonul Colak PDF Summary

Book Description: At any point in time a firm faces three restructuring choices: diversify, refocus, or do nothing. This study analyzes the causes and the consequences of these actions in a unified framework using the appropriate methodologies. Various factors, such as firm's characteristics and multinational nature, its industry's characteristics, its exchange and index inclusion, and divested (or acquired) segment(s)' industry conditions, are considered as the determinants of the diversifying and the refocusing decisions. The estimation results from the corresponding multinomial logit model suggest that refocusing occurs generally due to firm-specific reasons, and diversification due to outside factors, such as industry and economic conditions. Added or dropped segment's industry profitability, its relationship to the core business of the firm, and its relatedness to the businesses of the conglomerate's other segments have a nontrivial effect on either decision. In a related analysis, the paper explicitly models and estimates the valuation consequences that are sustained by the firm after it undertakes a refocusing or a diversification action. To isolate the changes in firm's value that are due to these decisions only, a 2SLS estimation is used to control for endogeneity that arises because the factors that affect a firm's value are likely to have also induced the firm to make the corresponding decision. The novelty of my approach is in its inclusion of variables measuring the consequences due to both actions, the diversification and the refocusing, in the same valuation equation. Contrary to some earlier findings, I find no evidence of 'diversification discount' or 'refocusing premium.' The choice of this paper to analyze all corporate restructuring decisions in a unified framework yields valuable business insights into the reasons for undertaking such corporate events.

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Diversification, Refocusing, and Firm Value

Diversification, Refocusing, and Firm Value

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At any point in time a firm faces three restructuring choices: diversify, refocus, or do nothing. This study analyzes the causes and the consequences of these a

Explaining the Diversification Discount

Explaining the Diversification Discount

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Diversified firms trade at a discount relatively to similar single-segment firms. We argue in this paper that this observed discount is not per se evidence that

Causes and Effects of Corporate Refocusing

Causes and Effects of Corporate Refocusing

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We study the precursors and outcomes of refocusing episodes by 107 diversified firms that were not taken over between 1984 and 1993. These firms had more value-