Abstract

Finance literature has documented that markets value multi-divisional firms less than a theoretical portfolio of single division firms. In this talk, we reexamine the question of whether, and when, corporate diversification adds value to a firm. Using data from over 3,000 Japanese firms for the period 1999 – 2014, we find that there is a large variation in market values of diversified firms. We show that market values are high for diversified firms with strong corporate governance. This is because the investment opportunities and outcomes of business divisions have lower relative co-movements, which allows well-governed firms to use their internal capital markets to smooth cash flows. Market values of diversified firms are low only when corporate governance is weak, consistent with capital misallocation where funds are transferred from high- to low-productivity divisions.

Christina Atanasova joined the Beedie School of Business at Simon Fraser University in 2007. She holds a PhD in Finance from the University of Leeds, UK and has been in the faculty at the University of York, a Visiting Professor at Université Dauphine Paris, Auckland University of Technology and an Erskine fellow at the University of Canterbury.

Her research has focused on issues in empirical corporate finance such as corporate governance, capital structure and risk management. She has published in leading academic and practitioner journals. She has been an associate editor for the Bulletin of Economic Research since 2004 and is currently a member of the editorial board of the Financial Analyst Journal.