Corporate investment activity, industrial and global diversification and internal capital markets.

摘要

Recent empirical studies document the average industrially diversified firm trades at a discount than a portfolio of comparable single-segment firms while geographically diversified firms are shown to face similar, if not higher, discounts. They attribute the diversification discount to inefficient allocation of capital in diversified firms. Most of this literature uses aggregate capital expenditures and cash flows data across divisions obtained from Compustat industry-segment and geographic-segment data tapes. In our first paper, we employ firm-specific data to examine the pre- and post-acquisition performance of firms engaging in diversifying and non-diversifying investments in order to determine whether the diversification discount may be attributed to the act of diversification itself. Consistent with the diversification literature, our results show, prior to the acquisition, diversified firms trade at a discount in comparison to their imputed values and single-segment firms. We also find the valuation of single- and multi-segment bidders deteriorates systematically as we approach the acquisition year. Post-acquisition evidence indicates the valuation of diversifying and non-diversifying single- and multi-segment firms worsens. Our results suggest the core cash flows of multi-segment diversifying (focusing) bidders are used to finance both core and non-core capital expenditures despite the fact that the non-core (core) business exhibits superior performance relative to the core (non-core) business while the non-core (core) business should have been allocated more funds based on segment performance. Overall, our results suggest diversification fails to reverse poor performance in multi-segment firms because they retain relatively poor performing business segments where considerable amount of capital resources are transferred from the better performing segments of the firm. In our second paper, we investigate whether the act of geographic and industrial diversification destroy value when they take place by employing firm-specific data of bidders that engage in diversifying and non-diversifying overseas investments in the form of M&As. Our results indicate the valuation of single- and multi-segment overseas bidders worsens as the acquisition year nears. Consistent with the recent industrial and geographic diversification literature, our findings indicate not only the extent of industrial diversification, but also the extent of international involvement of bidders has significant adverse valuation consequences. Our results also show the act of geographic diversification destroys value when it takes place in the form of M&As for domestic bidders. Post-acquisition evidence indicates diversifying multi-segment bidders gain from overseas acquisitions lending support to Morck and Yeung (1998), while single-segment bidders and focusing multi-segment bidders face valuation declines, domestic single-segment bidders diversifying overseas being hurt the most. The workings of the internal capital markets around the overseas investment decision indicate both core and non-core capital expenditures of multi-segment bidders utilize their own segment cash flows providing evidence against cross-subsidization in industrially diversified bidders. The cross-sectional examination of bidders' valuation lends some support to agency theory and internalization theory explanation of geographic diversification. The cash flow of the core business seems to contribute to firm value of single-segment and focusing multi-segment bidders suggesting the value losses associated with industrial diversification might stem from the inadequate contribution of non-core lines of' business. The evidence that both core and non-core cash flows of diversifying multi-segment bidders contribute to firm value 2 years after the acquisition implies that these firms reap the benefits in an expanded multinational network as suggested by Doukas and Travlos (1988).