The Value of Diversification During the Conglomerate Merger Wave



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    • University of North Carolina at Chapel Hill. Part of this research was completed while the author was visiting the Graduate School of Business at the University of Chicago. I would like to thank Michael Barclay, David Denis, Ajay Khorana, John Matsusaka, Eli Ofek, Tim Opler, David Ravenscraft, René Stulz, Sigrid Vandemaele, Sunil Wahal, Marc Zenner, and seminar participants at the University of North Carolina at Chapel Hill, Tilburg University, and the NBER Summer Institute for helpful comments. Carl Ackermann, Amy Dittmar, Ajay Khorana, and Prakit Narongtanupon have provided excellent research assistance.


The current trend toward corporate focus reverses the diversification trend of the late 1960s and early 1970s. This article examines the value of diversification when many corporations started to diversify. I find no evidence that diversified companies were valued at a premium over single segment firms during the 1960s and 1970s. On the contrary, there was a large diversification discount during the 1960s, but this discount declined to zero during the 1970s. Insider ownership was negatively related to diversification during the 1960s, but when the diversification discount declined, firms with high insider ownership were the first to diversify.