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Value of Conglomerates and Capital Market Conditions

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  • An Yan

Abstract

This article studies variations in the value of diversification across time under various capital market conditions. I find that when external capital is more costly at the aggregate level, the value of conglomerates increases relative to focused firms. I also find that this increase is greater for financially constrained conglomerates, such as bank‐dependent or small conglomerates. My findings support the theories on the advantage of diversification over focus. They suggest that the ability to substitute external capital markets with internal capital markets creates value for conglomerates when the financing cost in external markets is high, especially for those conglomerates that are financially constrained.

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  • An Yan, 2006. "Value of Conglomerates and Capital Market Conditions," Financial Management, Financial Management Association International, vol. 35(4), pages 5-30, December.
    • Handle: RePEc:bla:finmgt:v:35:y:2006:i:4:p:5-30
    DOI: 10.1111/j.1755-053X.2006.tb00157.x
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    10. Finnerty, John D. & Jiao, Jie & Yan, An, 2012. "Convertible securities in merger transactions," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 275-289.
    11. Cline, Brandon N. & Garner, Jacqueline L. & Yore, Adam S., 2014. "Exploitation of the internal capital market and the avoidance of outside monitoring," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 234-250.
    12. Stefan Erdorf & Thomas Hartmann-Wendels & Nicolas Heinrichs & Michael Matz, 2013. "Corporate diversification and firm value: a survey of recent literature," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 27(2), pages 187-215, June.
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    14. Duygun, Meryem & Huang, Bihong & Qian, Xiaolin & Tam, Lewis H.K., 2018. "Corporate pension plans and investment choices: Bargaining or conforming?," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 519-537.
    15. Yan, An & Yang, Zaihui & Jiao, Jie, 2010. "Conglomerate investment under various capital market conditions," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 103-115, January.
    16. Nippa, Michael, 2011. "Zur Notwendigkeit des Corporate Portfolio Management: Eine Würdigung der wissenschaftlichen Forschung der letzten vier Jahrzehnte," Freiberg Working Papers 2011/02, TU Bergakademie Freiberg, Faculty of Economics and Business Administration.
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