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Diversification and organizational environment: the effect of resource scarcity and complexity on the valuation of multi-segment firms

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  • Maximilian Sturm

    (University of Münster)

  • Stephan Nüesch

    (University of Münster)

Abstract

In this study, we examine the effect of corporate diversification on firm valuation and the extent to which resource scarcity and complexity of the organizational environment moderate this relationship. Analyzing a dataset of 4437 North American firms that covers the years 1998 through 2015, we find that diversification reduces firm valuation. In addition, we find that resource scarcity significantly decreases and that environmental complexity significantly increases this diversification discount. Our findings emphasize the relevance of environmental resource endowment and complexity when determining the value of multi-segment firms.

Suggested Citation

  • Maximilian Sturm & Stephan Nüesch, 2019. "Diversification and organizational environment: the effect of resource scarcity and complexity on the valuation of multi-segment firms," Journal of Business Economics, Springer, vol. 89(3), pages 251-272, April.
    • Handle: RePEc:spr:jbecon:v:89:y:2019:i:3:d:10.1007_s11573-017-0881-5
    DOI: 10.1007/s11573-017-0881-5
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    More about this item

    Keywords

    Firm valuation; Multi-segment firms; Environmental conditions; Resource scarcity; Complexity;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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