Diversification, Organization, and Value of the Firm. Issue 2 (29th September 2015)

• Record Type: Journal Article
• Authors: Ushijima, Tatsuo
• Is Part Of: Financial management. Volume 45:Issue 2(2016:Summer)
• Page Start: 467
• Page End: 499
• Publication Date: 2015-09-29
• Subjects: Corporations -- Finance -- Periodicals; 658.1505
• DOI: 10.1111/fima.12108
• Languages: English
• ISSNs: 0046-3892

Abstract

Abstract : Because corporate diversification coevolves with organizational structure, a discount for diversification, which is widely documented in the literature, can be caused by organizational structure rather than by the industrial scope of the firm. I examine this possibility based on a large sample of Japanese firms for which the legal (parent–subsidiary) structure of the organization is easily observable. I identify a significant discount for diversified firms with and without control over the organizational structure. I also find that firms with a legally segmented structure (e.g., holding companies) are deeply discounted. My results suggest that diversification and organization are both important determinants of firm value.