The Value of Diversification During the Conglomerate Merger Wave

TLDR

Corporate focus has reversed the earlier diversification trend of the late 1960s and early 1970s. The study investigates the value of diversification during the period when many firms began diversifying. The study finds no premium for diversified firms, a large 1960s diversification discount that fell to zero in the 1970s, and that high insider ownership firms were the first to diversify as the discount disappeared.

Abstract

ABSTRACT 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.