Is There a Diversification Discount? Diversification, Payout Policy, and the Value of a Firm.
10 Pages Posted: 16 Aug 2005
Date Written: June 2005
Empirical studies that account for the endogeneity of the diversification decision must also account for a firm's alternative uses for its free cash flow. This study examines dividends and stock repurchases in tandem with the firm's diversification decision and finds that the factors that lead a firm to diversify also make it more likely to pay a dividend. Controlling for this relationship, the diversification premium found by recent research correcting for endogeneity turns back into a discount.
Keywords: Diversification, payout policy
JEL Classification: G34, G35
Suggested Citation: Suggested Citation