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Essays on corporate diversification and firm value

Mackey, Tyson B
http://rave.ohiolink.edu/etdc/view?acc_num=osu1148177870

Abstract Details

2006, Doctor of Philosophy, Ohio State University, Business Administration.
This dissertation finds new evidence on the relationship between diversification and firm performance. In Chapter Two, theory and evidence are presented showing how empirical studies accounting for the endogeneity of the diversification decision must also account for a firm’s alternative uses for its free cash flow. This chapter 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. In Chapter Three, consideration is given to the possibility that different firms can have differing results from diversification. Using a random parameters model, a distribution of firm-specific diversification effects is estimated, finding that, while diversification destroys value on average, it creates value for a quarter of firms. This chapter also hypothesizes that firms may have an optimal portfolio of businesses, and firms that are not creating value from diversification could potentially do so through by diversifying further. Through a series of hypothetical related and unrelated diversification scenarios, this chapter finds that almost half of the diversified firms who are not creating value through their past diversification efforts would create value from further related diversification; while very few of the firms that are currently creating value from diversification would create value from further diversification. After observing the heterogeneity across firms in the impact of diversification on firm performance, theory and evidence is presented on the source of this heterogeneity in Chapter Four. Using a Bayesian linear hierarchical model, firm-specific effects of diversification on firm performance are estimated as a function of firm attributes. The main finding is that the firm-specific resources that allow a firm to succeed in its original business, allow the firm to succeed through related diversification. Unsuccessful firms will not find success simply by finding a new market in which to compete.
Jay Barney (Advisor)
110 p.
Business Administration, Management

Recommended Citations

Citations

  • Mackey, T. B. (2006). Essays on corporate diversification and firm value [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1148177870

    APA Style (7th edition)

  • Mackey, Tyson. Essays on corporate diversification and firm value. 2006. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1148177870.

    MLA Style (8th edition)

  • Mackey, Tyson. "Essays on corporate diversification and firm value." Doctoral dissertation, Ohio State University, 2006. http://rave.ohiolink.edu/etdc/view?acc_num=osu1148177870

    Chicago Manual of Style (17th edition)

osu1148177870
9,184
© 2006, all rights reserved.
This open access ETD is published by The Ohio State University and OhioLINK.