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Contribution Details

Type Master Thesis
Scope Discipline-based scholarship
Organization Unit
  • Karol Zajac
  • Michel Habib
  • Fulvia Fringuellotti
  • English
Institution University of Zurich
Faculty Faculty of Business, Economics and Informatics
Number of Pages 79
Date May 2019
Abstract Text Diversification is not possible only from the personal perspective, but firm can also engage into various activities to decrease the correlation of profits across their operations. Diversification in theory can have value increasing effects due to reduction in the earning`s volatility, hedging the unsystematic risk on the firm level, higher operating efficiency, better access to capital markets, tax optimization and additional growth opportunities. In contrary, diversification can come in the cost of using the extra resources to fund negative net present value projects, potential higher agency costs and possibility for the worse performing sectors living of better performing sector. Research studies tried to answer the question if the benefits or costs prevail with the inconclusive answer. The first wave of studies in USA found the value increasing effects dominates, which was reversed by later studies in USA. However, the results of the second wave were questioned on the ground of endogeneity and selection bias, benchmarking of the diversification discount and segment reporting manipulation. The international evidence also was not able to fully explain this discount, but it tried to assign it to on attributes such as ownership, frictions in the capital, labour and products market, level of diversification and dynamisms of industries. My thesis covers the research gab in the diversification studies by focusing on the countries of Austria, Czech Republic, Hungary and Slovakia from 2013 to 2017. My analysis is using the methodology proposed by Berger and Ofek (1995), which is based on the calculation of the excess value derived from the industry multiple of the single-segment companies. The results of my study show that diversified companies are valued at significant discount of 35.5% for the sales multiple in the Basic Model with control variables of size, efficiency and growth opportunities, when the excess value is calculated with median multiplier. The main result of my thesis is finding that diversification discount is largely influenced by ownership structure, when the main driver for the diversification discount is identified as institutional ownership between 10% and 50%. Additionally, the significant results with the biggest impact on the diversification values are ownership with holdings above 50% such as corporate, government, insider and institutional ownership. My results also support the view that diversification is country varying, but I am unable to assign this diversification discount into individual countries.
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