Diversification Discount or Premium? New Evidence from the Business Information Tracking Series


  • Belén Villalonga

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    • Belén Villalonga is at Harvard University. I would like to thank Judith Chevalier, Harold Demsetz, Amy Dittmar, Connie Helfat, Armen Hovakimian, Guido Imbens, Matthias Kahl, Walter Kuemmerle, Vojislav Maksimovic, Richard Makadok, Anita McGahan, Bill McKelvey, William Ouchi, Thomas Piper, Erik Powers, David Scharfstein, Olav Sorenson, Richard Roll, Richard Ruback, Richard Rumelt, the editor (Richard Green), an anonymous referee, and seminar participants at Harvard, MIT, and the University of Michigan for their comments and suggestions. Thanks to Nelson Lim and Jim Davis for their help at the California and Boston Census Research Data Centers (CCRDC and BRDC), respectively. Financial support from the Division of Research at the Harvard Business School and the CCRDC is also gratefully acknowledged. The research in this paper was conducted while the author was a research associate at the CCRDC and at the BRDC in association with the Center for Economic Studies of the U.S. Bureau of the Census. Research results and conclusions expressed are those of the author and do not necessarily indicate concurrence by the Bureau of the Census, the Center for Economic Studies, the CCRDC, or the BRDC. All errors remain mine.


I use the Business Information Tracking Series (BITS), a new census database that covers the whole U.S. economy at the establishment level, to examine whether the finding of a diversification discount is an artifact of segment data. BITS data allow me to construct business units that are more consistently and objectively defined than segments, and thus more comparable across firms. Using these data on a sample that yields a discount according to segment data, I find a diversification premium. The premium is robust to variations in the sample, business unit definition, and measures of excess value and diversification.