IDEAS home Printed from https://ideas.repec.org/a/eee/corfin/v14y2008i5p674-687.html
   My bibliography  Save this article

Does geographic dispersion affect firm valuation?

Author

Listed:
  • Gao, Wenlian
  • Ng, Lilian
  • Wang, Qinghai

Abstract

We find that the geographic dispersion of a corporation affects its firm valuation. Firms with subsidiaries located in different regions of the United States experience a valuation discount of 6.2% after controlling for the impact of both global and industrial diversifications. The valuation discount increases as firms expand their operations to different regions nationwide. Results show that firms with more anti-takeover provisions are more likely to be geographically diverse, and that these firms experience greater value discounts compared with their counterparts with fewer such provisions. Our overall evidence suggests that the geographic location of corporate activities is an essential component of corporate policies and has important market valuation implications.

Suggested Citation

  • Gao, Wenlian & Ng, Lilian & Wang, Qinghai, 2008. "Does geographic dispersion affect firm valuation?," Journal of Corporate Finance, Elsevier, vol. 14(5), pages 674-687, December.
    • Handle: RePEc:eee:corfin:v:14:y:2008:i:5:p:674-687
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0929-1199(08)00073-4
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. repec:bla:jfinan:v:59:y:2004:i:2:p:507-535 is not listed on IDEAS
    2. David J. Denis & Diane K. Denis & Keven Yost, 2002. "Global Diversification, Industrial Diversification, and Firm Value," Journal of Finance, American Finance Association, vol. 57(5), pages 1951-1979, October.
    3. Philip G. Berger & Rebecca Hann, 2003. "The Impact of SFAS No. 131 on Information and Monitoring," Journal of Accounting Research, Wiley Blackwell, vol. 41(2), pages 163-223, May.
    4. repec:bla:jfinan:v:59:y:2004:i:2:p:479-506 is not listed on IDEAS
    5. David Hyland & J David Diltz, 2002. "Why Firms Diversify: An Empirical Examination," Financial Management, Financial Management Association, vol. 31(1), Spring.
    6. John R. Graham & Michael L. Lemmon & Jack G. Wolf, 2002. "Does Corporate Diversification Destroy Value?," Journal of Finance, American Finance Association, vol. 57(2), pages 695-720, April.
    7. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance and Equity Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 107-156.
    8. Jose Manuel Campa & Simi Kedia, 2002. "Explaining the Diversification Discount," Journal of Finance, American Finance Association, vol. 57(4), pages 1731-1762, August.
    9. Art Durnev & E. Han Kim, 2005. "To Steal or Not to Steal: Firm Attributes, Legal Environment, and Valuation," Journal of Finance, American Finance Association, vol. 60(3), pages 1461-1493, June.
    10. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    11. Berger, Philip G. & Ofek, Eli, 1995. "Diversification's effect on firm value," Journal of Financial Economics, Elsevier, vol. 37(1), pages 39-65, January.
    12. Fauver, Larry & Houston, Joel F. & Naranjo, Andy, 2004. "Cross-country evidence on the value of corporate industrial and international diversification," Journal of Corporate Finance, Elsevier, vol. 10(5), pages 729-752, November.
    13. Vojislav Maksimovic & Gordon Phillips, 2002. "Do Conglomerate Firms Allocate Resources Inefficiently Across Industries? Theory and Evidence," Journal of Finance, American Finance Association, vol. 57(2), pages 721-767, April.
    14. Thomas J. Chemmanur & Imants Paeglis & Karen Simonyan, 2011. "Management Quality and Antitakeover Provisions," Journal of Law and Economics, University of Chicago Press, vol. 54(3), pages 651-692.
    15. Lang, Larry H P & Stulz, Rene M, 1994. "Tobin's q, Corporate Diversification, and Firm Performance," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1248-1280, December.
    16. Denis, David J & Denis, Diane K & Sarin, Atulya, 1997. "Agency Problems, Equity Ownership, and Corporate Diversification," Journal of Finance, American Finance Association, vol. 52(1), pages 135-160, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Carosi, Andrea, 2016. "Do local causations matter? The effect of firm location on the relations of ROE, R&D, and firm SIZE with MARKET-TO-BOOK," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 388-409.
    2. Kling, Gerhard & Weitzel, Utz, 2011. "The internationalization of Chinese companies: Firm characteristics, industry effects and corporate governance," Research in International Business and Finance, Elsevier, vol. 25(3), pages 357-372, September.
    3. Li, Bin & Yao, Yao & Shahab, Yasir & Li, Hai-Xia & Ntim, Collins G., 2020. "Parent-subsidiary dispersion and executive excess perks consumption," International Review of Financial Analysis, Elsevier, vol. 70(C).
    4. Xiaoling Chu & Chiuling Lu & Desmond Tsang, 2021. "Geographic Scope and Real Estate Firm Performance during the COVID-19 Pandemic," JRFM, MDPI, vol. 14(7), pages 1-16, July.
    5. García, Diego & Norli, Øyvind, 2012. "Geographic dispersion and stock returns," Journal of Financial Economics, Elsevier, vol. 106(3), pages 547-565.
    6. Ge, Yao & Qiao, Zheng & Zheng, Hao, 2023. "Local labor market and the cross section of stock returns," Journal of International Money and Finance, Elsevier, vol. 138(C).
    7. Jiang, Fei & Kong, Dongmin & Lu, Zhengfei & Ma, Yongqiang & Yi, Yang, 2023. "Geographic dispersion and corporate resilience during the COVID-19 pandemic," International Review of Financial Analysis, Elsevier, vol. 88(C).
    8. Fernando Merino, 2017. "Offshoring, outsourcing and the economic geography of Europe," Papers in Regional Science, Wiley Blackwell, vol. 96(2), pages 299-323, June.
    9. Lu, Hsueh-Tien & Keung, Edmund C., 2019. "Entry mode and firm value: Evidence from investing firms in mainland China," Pacific-Basin Finance Journal, Elsevier, vol. 58(C).
    10. Gao, Wenlian & Chou, Julia, 2015. "Innovation efficiency, global diversification, and firm value," Journal of Corporate Finance, Elsevier, vol. 30(C), pages 278-298.
    11. Baschieri, Giulia & Carosi, Andrea & Mengoli, Stefano, 2015. "Local IPOs, local delistings, and the firm location premium," Journal of Banking & Finance, Elsevier, vol. 53(C), pages 67-83.
    12. Özgür Arslan & Mehmet Baha Karan, 2009. "Credit risks and internationalization of SMEs," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 10(4), pages 361-368, September.
    13. Aabo, Tom & Hansen, Jakob Berggreen & Petersen, Sebastian Malling, 2023. "Love thy neighbor: CEO extraversion and corporate acquisitions," Finance Research Letters, Elsevier, vol. 55(PA).
    14. Zhang, Chenrui & Wang, Yatong, 2024. "Is enterprise digital transformation beneficial to shareholders? Insights from the cost of equity capital," International Review of Financial Analysis, Elsevier, vol. 92(C).
    15. Anagnostopoulou, Seraina C. & Gounopoulos, Dimitrios & Malikov, Kamran & Pham, Hang, 2021. "Earnings management by classification shifting and IPO survival," Journal of Corporate Finance, Elsevier, vol. 66(C).
    16. Sun, Yuan & Sun, Xiaowei & Wang, Zehao, 2024. "Climate risk exposure and geographical allocation of business activities: Evidence from Chinese listed companies," Finance Research Letters, Elsevier, vol. 59(C).
    17. James, Hui Liang & Wang, Hongxia & Xie, Yamin, 2018. "Busy directors and firm performance: Does firm location matter?," The North American Journal of Economics and Finance, Elsevier, vol. 45(C), pages 1-37.
    18. Farooqi, Javeria & Huerta, Daniel & Ngo, Thanh, 2015. "Should you globally diversify or let the globally diversified firm do it for you?," The Quarterly Review of Economics and Finance, Elsevier, vol. 57(C), pages 75-85.
    19. Chen, Hanwen & Liu, Siyi & Wang, Junjie & Wu, Zhijuan, 2022. "The effect of geographic proximity on corporate tax avoidance: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 72(C).
    20. Kun Li & Nasrin R. Khalili & Weiquan Cheng, 2019. "Corporate Social Responsibility Practices in China: Trends, Context, and Impact on Company Performance," Sustainability, MDPI, vol. 11(2), pages 1-19, January.
    21. Yu-En Lin & Jia-Qi Yu & Hsiang-Hsuan Chih & Kung-Cheng Ho, 2022. "Near is more: learning efficiency in research and development innovation among interlocking firms," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-30, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Schmid, Markus M. & Walter, Ingo, 2009. "Do financial conglomerates create or destroy economic value?," Journal of Financial Intermediation, Elsevier, vol. 18(2), pages 193-216, April.
    2. Tong, Zhenxu, 2011. "Firm diversification and the value of corporate cash holdings," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 741-758, June.
    3. Lin, Chen & Su, Dongwei, 2008. "Industrial diversification, partial privatization and firm valuation: Evidence from publicly listed firms in China," Journal of Corporate Finance, Elsevier, vol. 14(4), pages 405-417, September.
    4. 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.
    5. Xi He, 2012. "Two Sides of a Coin: Endogenous and Exogenous Effects of Corporate Diversification on Firm Value," International Review of Finance, International Review of Finance Ltd., vol. 12(4), pages 375-397, December.
    6. Guilhem Bascle, 2008. "Controlling for endogeneity with instrumental variables in strategic management research," Post-Print hal-00576795, HAL.
    7. Hoechle, Daniel & Schmid, Markus & Walter, Ingo & Yermack, David, 2012. "How much of the diversification discount can be explained by poor corporate governance?," Journal of Financial Economics, Elsevier, vol. 103(1), pages 41-60.
    8. Marinelli, Federico, 2008. "Persistence of outstanding performance and shareholder value among diversified firms: The impact of past performance, efficient internal capital market, and relatedness of business segments," IESE Research Papers D/758, IESE Business School.
    9. Christian Espinosa & Carlos Maquieira & Joao Paulo Vieito, 2012. "Does corporate diversication create value in south america? The chilean case," Working Papers 38, Facultad de Economía y Empresa, Universidad Diego Portales.
    10. Jiraporn, Pornsit & Kim, Young Sang & Davidson III, Wallace N., 2008. "Multiple directorships and corporate diversification," Journal of Empirical Finance, Elsevier, vol. 15(3), pages 418-435, June.
    11. Laeven, Luc & Levine, Ross, 2007. "Is there a diversification discount in financial conglomerates?," Journal of Financial Economics, Elsevier, vol. 85(2), pages 331-367, August.
    12. Christian Espinosa & Juan Gorigoitía, 2012. "Stability of sovereign risk in the Eurozone through the Lyapunov Exponent," Working Papers 36, Facultad de Economía y Empresa, Universidad Diego Portales.
    13. Richard Borghesi & Joel Houston & Andy Naranjo, 2007. "Value, Survival, and the Evolution of Firm Organizational Structure," Financial Management, Financial Management Association International, vol. 36(3), pages 5-31, September.
    14. Patrick Bielstein & Mario Fischer & Christoph Kaserer, 2018. "The cost of capital effect of M&A transactions: Disentangling coinsurance from the diversification discount," European Financial Management, European Financial Management Association, vol. 24(4), pages 650-679, September.
    15. Bushman, Robert & Chen, Qi & Engel, Ellen & Smith, Abbie, 2004. "Financial accounting information, organizational complexity and corporate governance systems," Journal of Accounting and Economics, Elsevier, vol. 37(2), pages 167-201, June.
    16. Gönül Çolak, 2010. "Diversification, Refocusing and Firm Value," European Financial Management, European Financial Management Association, vol. 16(3), pages 422-448, June.
    17. Hornstein, Abigail S. & Nguyen, Zachary, 2014. "Is more less? Propensity to diversify via M&A and market reactions," International Review of Financial Analysis, Elsevier, vol. 34(C), pages 76-88.
    18. Jiraporn, Pornsit & Kim, Young Sang & Davidson, Wallace N. & Singh, Manohar, 2006. "Corporate governance, shareholder rights and firm diversification: An empirical analysis," Journal of Banking & Finance, Elsevier, vol. 30(3), pages 947-963, March.
    19. Chen, Sheng-Syan & Chen, I-Ju, 2012. "Corporate governance and capital allocations of diversified firms," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 395-409.
    20. Liang, Hsin-Yu & Chen, I-Ju & Chen, Sheng-Syan, 2016. "Does corporate governance mitigate bank diversification discount?," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 129-143.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:corfin:v:14:y:2008:i:5:p:674-687. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jcorpfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.