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Both Sides of Corporate Diversification: The Value Impacts of Geographic and Industrial Diversification

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  • Gordon M. Bodnar
  • Charles Tang
  • Joseph Weintrop

Abstract

This paper examines the effect of geographic and industrial diversification on firm value for a sample of over 20,000 firm-year observations of U.S. corporations from 1987-1993. Our" multivariate tests indicate the average value of a firm with international operations is 2.2% higher than comparable domestic single activity firms, while the average value of a firm with activities in multiple industrial segments is 5.4% lower than a portfolio of comparable focused domestic firms in similar activities. More importantly, we demonstrate that failure to control simultaneously for both dimensions of diversification results in over-estimation of the negative value impact of industrial diversification, but has little impact on estimates of the positive value impact of geographic diversification.

Suggested Citation

  • Gordon M. Bodnar & Charles Tang & Joseph Weintrop, 1997. "Both Sides of Corporate Diversification: The Value Impacts of Geographic and Industrial Diversification," NBER Working Papers 6224, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:6224
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    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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