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Reevaluating the conglomerate discount in Germany: the role of design choices

Author

Listed:
  • Marc Eulerich

    (University of Duisburg-Essen)

  • Benjamin Fligge

    (University of Duisburg-Essen)

Abstract

Despite the current trend toward refocusing on the core business, the empirical results on the conglomerate discount are conflicting and provide opposing implications to managers as to whether they should pursue diversification or not. Prior literature has employed various research designs, all of which have the potential to impact results. In this study, we analyze which design choices affect the conglomerate discount. We analyze a sample of approximately 6000 German firm-years between 2000 and 2019 and find a conglomerate discount of 7.9–11.5%. Our findings reveal that design choices related to self-selection have the highest impact on the results. Using a 2SLS approach, we find no causal relationship between diversification and market value despite testing various sets of instruments and excess values. Our results inform practitioners and researchers regarding the impact of design choices on the magnitude and existence of the conglomerate discount.

Suggested Citation

  • Marc Eulerich & Benjamin Fligge, 2025. "Reevaluating the conglomerate discount in Germany: the role of design choices," Journal of Business Economics, Springer, vol. 95(1), pages 155-185, January.
    • Handle: RePEc:spr:jbecon:v:95:y:2025:i:1:d:10.1007_s11573-023-01188-y
    DOI: 10.1007/s11573-023-01188-y
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    Keywords

    Conglomerate discount; Diversification discount; Diversification; Germany; Strategy; Market value;
    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
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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