The Valuation Discount of Diversified Firms in Australia

2001 ◽  
Author(s):  
Grant A. Fleming ◽  
Barry R. Oliver ◽  
Steven Skourakis
Keyword(s):  
Diversified Firms

Do corporate diversification and earnings management practices affect capital structure?

2015 ◽  
Vol 7 (4) ◽  
pp. 360-378 ◽  
Author(s):  
Ranjitha Ajay ◽  
R Madhumathi
Keyword(s):  
Capital Structure ◽  
Earnings Management ◽  
Management Practices ◽  
Negative Relationship ◽  
Corporate Diversification ◽  
Content Type ◽  
Diversification Strategies ◽  
Market Product ◽  
Diversified Firms ◽  
The Impact

Purpose – The purpose of this paper is to empirically examine the impact of earnings management on capital structure across firm diversification strategies. Design/methodology/approach – The study focuses on firms operating in the manufacturing sector (diversified and focused). Panel data methodology compares diversification strategies and identifies the impact of diversification strategy with earnings management practices on capital structure decision. Findings – International and product diversified firms have lower levels of leverage than focused firms in their capital structure. Asset-based earnings management is positive for diversified (market/product) firms. Earnings management using discretionary expenditure (project based) is found to be higher for market diversified but product-focused firms. Earning smoothing method is found to be significant for focused firms and shows a negative relationship with capital structure. Originality/value – This study offers an insight into the relationship between corporate diversification, earnings management and capital structure decisions of manufacturing firms. The results provide an important contribution to accounting and strategy literature. A distinction is made between market- and product-diversified firms and influence of earnings management practices (asset-based, project-based and earnings smoothing (ESM)) on capital structure decisions. Diversified firms (market/product) tend to have lower levels of leverage than focused firms and earnings management practices within firm groups significantly influence the capital structure decisions.

Optimal Segment Distance in Diversified Firms

2011 ◽  
Author(s):  
Fernando Anjos ◽  
Cesare Fracassi
Keyword(s):  
Diversified Firms

scholarly journals Product Line Diversification and Its Impact on Firm Performance

2021 ◽  
Vol 5 (3) ◽  
pp. 43-58
Author(s):  
Zia ur Rehman ◽  
Asad Khan ◽  
Rafique Ahmed Khuhro ◽  
Abdul Ghafoor Khan
Keyword(s):  
Firm Performance ◽  
Financial Performance ◽  
Product Line ◽  
Group Affiliation ◽  
Firm Profitability ◽  
Business Line ◽  
Diversified Firms ◽  
The Impact ◽  
Positive Effect ◽  
Better Than

The objective of the study is to measure product diversification’s impact on insurance firm’s financial performance in Pakistan. Analysis are carried out to examine how ownership structure, capitalization, group membership, firm size, diversification across business lines, industry concentration affects firm’s financial performance. Data from 2009-2019 is collected to measure the impact of diversification (entropy) on the risk- adjusted returns. Findings of the study reveal that business line diversification has strong positive effect on firm performance (for both ROA and ROE) which means that diversified firms perform better than non-diversified firms. For managers these findings are useful as they propose the need for diversification, capitalization, increase in size and group affiliation to enhance firm profitability.

The Economic Impact of Corporate Capital Expenditures: Focused Firms versus Diversified Firms

2006 ◽  
Vol 41 (2) ◽  
pp. 341-355 ◽  
Author(s):  
Sheng-Syan Chen
Keyword(s):  
Economic Impact ◽  
Capital Markets ◽  
Operating Performance ◽  
Capital Expenditures ◽  
Internal Capital Markets ◽  
Capital Investments ◽  
Corporate Capital ◽  
Investment Opportunities ◽  
Diversified Firms

AbstractThis paper examines the role of focus versus diversification in explaining the economic impact of corporate capital investments. I find that the stock market's responses to announcements of capital investments are more favorable for focused firms than for diversified firms. I also show that focused firms exhibit significantly better post-investment operating performance than diversified firms. The overall findings in this study suggest that the investment opportunities hypothesis dominates the internal capital markets hypothesis in terms of the net economic impact of capital investments on the investing firms.

scholarly journals The Effect of SFAS No. 131 on the Diversification Discount

2015 ◽  
Vol 7 (2) ◽  
pp. 58
Author(s):  
Seoungpil Ahn
Keyword(s):  
Firm Value ◽  
Investment Efficiency ◽  
Diversification Discount ◽  
Segment Reporting ◽  
Precise Estimation ◽  
Rule Change ◽  
Before And After ◽  
Excess Value ◽  
Diversified Firms ◽  
The Impact

<p>For a sample of diversified firms, I investigate the impact of the segment reporting rule change from SFAS No. 14 to SFAS No. 131 in 1997. This change in segment-reporting rules to SFAS No. 131 potentially allows more precise estimation of diversification discount. I probe the changes in the diversification discount before and after the reporting rule change in 1997. I find that there is a substantial increase in the diversification discount under SFAS No. 131. Further analysis indicates that the changes in the diversification discount are unrelated to the changes in firm value or investment efficiency. Instead, the measures of diversity appear to be more associated with the changes in excess value. This indicates that excess value is not a clean measure of diversification discount.</p>

Corporate diversification

2018 ◽  
Vol 17 (3) ◽  
pp. 405-424 ◽  
Author(s):  
Garrett C.C. Smith ◽  
Jeffrey M. Coy
Keyword(s):  
Design Methodology ◽  
Negative Relationship ◽  
Corporate Diversification ◽  
Diversification Discount ◽  
Firm Level ◽  
Content Type ◽  
Long Run ◽  
Fundamental Value ◽  
Diversified Firms ◽  
Investor Preference

Purpose The purpose of this study is to compare two theories that relate the proportion of diversified firms in the economy and the implied discount for diversified firms: the first is a real-options model predicting a positive relationship between the discount and management’s choice to operate a diversified firm; the second is based on catering theory, in which a negative relationship is predicted, as management is attentive to investor preference concerning diversified firms. Design/methodology/approach This study proposes a new aggregate measure of the diversification discount. The authors’ measure allows for decomposition of the discount into firm-level mispricing, industry-level mispricing and long-run fundamental value components. Findings Results support a catering theory of diversification. The discount appears to be the result of firm-level mispricing. Thus, providing an explanation for why, in light of the observed discount, a large number of diversified firms persist. Originality/value To the authors’ knowledge, this is the first study to provide evidence that firm-level mispricing may drive the observed diversification discount.

The Difference Between Measuring Internal Funds Allocations in Groups and in Diversified Firms

2007 ◽  
Vol 10 (03) ◽  
pp. 341-347 ◽  
Author(s):  
Marc Jegers ◽  
Kooyul Jung ◽  
Byungmo Kim
Keyword(s):  
Ownership Structure ◽  
A Priori ◽  
Dependent Variables ◽  
Internal Funds ◽  
The Difference ◽  
Funds Allocation ◽  
Diversified Firms ◽  
Tunnelling Effects

Dependent variables used by Kim, Jung and Kim (2005) to assess the effect of the ownership structure of Korean chaebols on internal funds allocations are a priori misspecified in the context of their research, as they were designed to be applied when studying diversified firms and not groups consisting of legally independent entities. The conditions under which this misspecification has no effect on their conclusions are discussed. Re-analyzing their data with a more appropriate internal funds allocation variable leaves their conclusion on the presence of tunnelling effects intact, though it paints a partly different picture of internal allocations as such.

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