Global Diversification, Industrial Diversification, and Firm Value


  • David J. Denis,

  • Diane K. Denis,

  • Keven Yost

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    • David Denis, Diane Denis, and Keven Yost are from the Krannert Graduate School of Management at Purdue University. We appreciate helpful suggestions received from Espen Eckbo; Laura Field; Rick Green; John McConnell; Ralph Walkling; an anonymous referee; and seminar participants at Miami, Northeastern, Notre Dame, Ohio State, Penn State, the University of Texas-Dallas, the Joint Symposium of the 11th Annual Conference on Financial Economics and Accounting, and the 7th Annual Mitsui Life Symposium on Global Financial Markets at the University of Michigan. This project has been funded in part by a summer research grant from Purdue University's Center for International Business and Education Research (CIBER).


Using a sample of 44,288 firm-ears between 1984 and 1997, we document an increase in the extent of global diversification over time. This trend does not reflect a substitution of global for industrial diversification. We also find that global diversification results in average valuation discounts of approximately the same magnitude as those for industrial diversification. Analysis of the changes in excess value associated with changes in diversification reveals that increases in global diversification reduce excess value, while reductions in global diversification increase excess value. These findings support the view that the costs of global diversification outweigh the benefits.