What Does Diversification Offer? Paris Liu Abstract

• In Event: Breakfast with Research Roundtable Forum Session

Abstract

Since Lang and Stulz, 1994 and Berger and Ofek (1995) first find diversification discount, a lot of papers focus on whether there is diversification discount and how the discount forms. As I know, there is no paper systematically examining how diversified firms differ from focusing firms. In this paper, I will use Berger and Ofek (1995)’s method to examine a variety of firm characteristics, including some characteristics examined by prior research. The purpose of the study is to systematically examine how diversified companies differ from focusing ones. The study finds that diversified companies are more profitable and more flexible with expenses. Beyond that, diversified companies are likely to enter into growing business to increase their sales growth and maintain their high market returns. The findings can provide strategy decision makers useful information about the effect of diversification.

Author

• Xiaosi Liu, Kent State University