Does Diversification Cause the 'Diversification Discount'?

24 Pages Posted: 31 May 2004

See all articles by Belen Villalonga

Belen Villalonga

New York University (NYU) - Leonard N. Stern School of Business

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Abstract

Using recent econometric developments about causal inference, I examine whether diversification destroys value. I estimate the value effect of diversification by matching diversifying and single-segment firms on their propensity score - the predicted values from a probit model of the propensity to diversify. I also use Heckman's (1979) two-stage estimator for comparison purposes. I find that on average, diversification does not destroy value. This finding is robust to the choice of estimator, sample, measures of excess value, and specification.

Suggested Citation

Villalonga, Belen, Does Diversification Cause the 'Diversification Discount'?. Available at SSRN: https://ssrn.com/abstract=552183

Belen Villalonga (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

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