Does corporate diversification create value?

Rodolfo Q. Aquino


This study addresses the issue of whether the form of corporate diversification practiced in the Philippines, particularly that based on diversified family-based conglomerates and business groups, can create or destroy value. The study produces somewhat mixed results. Corporate diversification through the holding company route, per se, does not raise or reduce firm value as perceived by market investors. However, diversification into two unrelated businesses either via subsidiaries or internal divisions appears to add to firm value but any further diversification only subtracts value. Diversification through the route of interrelated business groups also appears to decrease value perceptions. These findings are robust with respect to the addition of variables found to have explanatory power on firm value such as consistency in dividend payout, asset growth, and industry grouping. In addition, value appears to be independent of capital structure and firm size.


JEL classification: G34, G31


Corporate diversification; Tobin’s q

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