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Does corporate diversification reduce value in high technology firms?

Author

Listed:
  • Nilakshi Borah

    (University of Wisconsin-La Crosse)

  • Liu Pan

    (Financial Research Institute of CCTV Securities Information Channel)

  • Jung Chul Park

    (University of South Florida)

  • Nan Shao

    (Henan University of Economics and Law)

Abstract

We find that firm value is reduced via industrial diversification and this reduction in value depends upon a firm’s technology intensity. We consider that asymmetric information problems are more severe in technology intensive industries and find that high tech industry firms present distinctly larger value reduction when compared to low tech industry firms. The negative valuation effect is greater for firms that have a relatively larger amount of intangible assets and greater R&D capital. We determine that our findings are robust to different estimation methods and alternative excess value measures.

Suggested Citation

  • Nilakshi Borah & Liu Pan & Jung Chul Park & Nan Shao, 2018. "Does corporate diversification reduce value in high technology firms?," Review of Quantitative Finance and Accounting, Springer, vol. 51(3), pages 683-718, October.
    • Handle: RePEc:kap:rqfnac:v:51:y:2018:i:3:d:10.1007_s11156-017-0685-2
    DOI: 10.1007/s11156-017-0685-2
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    1. Ahmed, Mohamed S. & Alhadab, Mohammad, 2020. "Momentum, asymmetric volatility and idiosyncratic risk-momentum relation: Does technology-sector matter?," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 355-371.
    2. Laura Arenas & Ana Maria Gil-Lafuente, 2021. "Regime Switching in High-Tech ETFs: Idiosyncratic Volatility and Return," Mathematics, MDPI, vol. 9(7), pages 1-25, March.

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    More about this item

    Keywords

    Diversification discount; High tech industries; Information asymmetry;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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