Book Description
This paper examines the effect of geographic and industrial diversification on firm value for a sample of over 31,000 firm-year observations of U.S. corporations from 1984 - 1997. Consistent with the predictions of most theories, we find the value of a firm with international operations is 2.7% higher than a comparable single-activity domestic firm, while the value of a multiactivity firm is 6.0% lower than a comparable portfolio of single-activity domestic firms. In addition, we demonstrate the existence of an omitted variable bias in estimating the value effect of industrial diversification when failing to account for geographic diversification when estimating. Sources of the value effects of both dimensions of diversification are also investigated.