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Contribution Details

Type Bachelor's Thesis
Scope Discipline-based scholarship
Title How does Diversification Affect the Value of a Multisegment Company
Organization Unit
Authors
  • Sergey Keller
Supervisors
  • Michel Habib
Language
  • English
Institution University of Zurich
Faculty Faculty of Business, Economics and Informatics
Number of Pages 89
Date 2016
Abstract Text This bachelor thesis examines a relation between industrial diversification and firm value. Although there are a lot of scientific papers and articles on this subject, scholars still haven’t managed to reach unambiguous opinion about general effect of diversification. Some of researchers believe that diversification destroys value, while others state the opposite. Taking into account the results of the prior research, I predict that there is a negative linear relation between industrial diversification and firm value. Therefore, I set out in this paper to research this scientific question. In the empirical part of my research, I value the segments of four multisegment firms using two different valuation methods. After that, the obtained equity values of the segments are added together and compared to the market values of conglomerates in the sample. Thus, I’m able to define and quantify the diversification effect on firm value. I report unclear relation between diversification and value. My hypothesis is not supported by the data. Moreover, my finding is inconsistent with the previous studies on the subject. Nevertheless, if one of the firms is excluded from the sample, I find that related diversification always leads to value destruction, while unrelated diversification may have both the value-enhancing and value-reducing effect on firm value. In conclusion, my study contributes to the existing literature by providing new empirical evidence on the research topic. Moreover, I offer an alternative method for measuring segments’ values. My approach is more precise than the ones used in the prior studies and it also allows me to control for global diversification effect. However, it depends on a lot of assumptions and thus should be used with caution.
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