Diversification Discount or Premium? New Evidence from Bits Establishment-Level Data
40 Pages Posted: 19 Dec 2000
This paper examines whether the finding of a diversification discount in U.S. stock markets is only a data artifact of segment data. I use a new establishment-level database that covers the whole U.S. economy to construct business units that are more consistently and objectively defined across firms than what segments are. On a sample of firms that exhibit a diversification discount according to segment data, I find that, when BITS data are used, diversified firms actually trade at a significant average premium. The premium is robust to variations in the method, sample, business unit definition, and measures of excess value and diversification.
Keywords: Diversification discount; Premium; Tobin's q; Sample selection
JEL Classification: G34
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