Kauppakorkeakoulu | Laskentatoimen ja rahoituksen laitos | Rahoitus | 2010
Tutkielman numero: 12319
Does ownership structure affect diversification discount? European evidence
|Otsikko:||Does ownership structure affect diversification discount? European evidence|
|Vuosi:||2010 Kieli: eng|
|Laitos:||Laskentatoimen ja rahoituksen laitos|
|Asiasanat:||rahoitus; financing; yritykset; companies; diversifikaatio; diversification; diskonttaus; discounting; yrityksen arvo; company valuation|
|Avainsanat:||Corporate diversification; diversification discount; diversified firms; excess values; ownership structure; corporate governance; corporate value|
PURPOSE OF THE STUDY The effect of corporate diversification on firm value is examined. It is investigated whether diversified firms are valued differently from single-segment firms. The main objective of the thesis, however, is to investigate whether ownership structure could affect diversification discount. The influence of four distinct investor types into diversified firms is analyzed. Large samples of firms in Germany and the United Kingdom is examined for 2004 and 2008. The thesis provides new evidence which ascertains the notion that the effect of diversification on firm value is dependent on the corporate governance environment.
DATA A sample of publicly traded firms from Germany and the United Kingdom from the Thomson Financial database for years 2004 and 2008 is gathered. The final sample consists of 353 and 506 U.K. firms and 161 and 189 German firms, for years 2004 and 2008 respectively. Key financial parameters are retrieved to sample firms at a business segment level. The data on ownership characteristics consists of aggregate individual, corporate, institutional and bank ownership concentrations. These have been manually handpicked from Thomson Financial.
RESULTS The results indicate that U.K. exhibits a significant diversification discount in 2008. The discount is approximately 24 percent. On the contrary to the findings attained from the U.K., no evidence of the diversification discount in Germany is found.
Concentrated institutional and corporate ownership benefit diversified firms in the U.K. However, for Germany no evidence indicating ownership structure to affect diversified firms’ valuation is found. Finally, evidence suggesting concentrated ownership to lower the level of corporate diversification is neither found.
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