| Publication type: | Article in scientific journal |
| Type of review: | Peer review (publication) |
| Title: | Is there really no conglomerate discount? |
| Authors: | Ammann, Manuel Höchle, Daniel Schmid, Markus |
| DOI: | 10.1111/j.1468-5957.2011.02261.x |
| Published in: | Journal of Business Finance and Accounting |
| Volume(Issue): | 39 |
| Issue: | 1-2 |
| Page(s): | 264 |
| Pages to: | 288 |
| Issue Date: | 2012 |
| Publisher / Ed. Institution: | Wiley |
| ISSN: | 0306-686X |
| Language: | English |
| Subjects: | Organizational structure; Diversification; Market value of debt; Endogeneity; Fixed effects |
| Subject (DDC): | 657: Accounting |
| Abstract: | Recent research questions the existence of a conglomerate discount. This study addresses two of the most important explanations for the conglomerate discount and finds evidence in support of an economically and statistically significant discount. The first explanation is that the risk‐reducing effect of diversification increases debt value and consequently the use of the book value of debt leads to an underestimation of firm value in diversified firms. We show that the effect of using an imputed market value of debt reduces the conglomerate discount only by a small fraction. However, consistent with the value‐transfer hypothesis, we find the discount to increase in leverage and no discount for all‐equity firms. An agency cost‐based explanation, which reconciles these conflicting findings, is that managers in levered firms become aligned with creditors and reduce firm risk at the expense of shareholders. Hence, the diversification discount only occurs in levered firms and stems from conflicts of interest between managers and shareholders over corporate risk taking. Second, the conglomerate discount may emerge from a neglect of the endogenous nature of the diversification decision. We first show that the conglomerate discount in fact disappears when we account for endogeneity in a Heckman selection model. However, when we account for fixed effects, the conglomerate discount remains statistically and economically significant, also in a Heckman selection‐model or instrumental variables framework. |
| URI: | https://digitalcollection.zhaw.ch/handle/11475/9065 |
| Fulltext version: | Published version |
| License (according to publishing contract): | Licence according to publishing contract |
| Departement: | School of Management and Law |
| Appears in collections: | Publikationen School of Management and Law |
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Ammann, M., Höchle, D., & Schmid, M. (2012). Is there really no conglomerate discount? Journal of Business Finance and Accounting, 39(1-2), 264–288. https://doi.org/10.1111/j.1468-5957.2011.02261.x
Ammann, M., Höchle, D. and Schmid, M. (2012) ‘Is there really no conglomerate discount?’, Journal of Business Finance and Accounting, 39(1-2), pp. 264–288. Available at: https://doi.org/10.1111/j.1468-5957.2011.02261.x.
M. Ammann, D. Höchle, and M. Schmid, “Is there really no conglomerate discount?,” Journal of Business Finance and Accounting, vol. 39, no. 1-2, pp. 264–288, 2012, doi: 10.1111/j.1468-5957.2011.02261.x.
AMMANN, Manuel, Daniel HÖCHLE und Markus SCHMID, 2012. Is there really no conglomerate discount? Journal of Business Finance and Accounting. 2012. Bd. 39, Nr. 1-2, S. 264–288. DOI 10.1111/j.1468-5957.2011.02261.x
Ammann, Manuel, Daniel Höchle, and Markus Schmid. 2012. “Is There Really No Conglomerate Discount?” Journal of Business Finance and Accounting 39 (1-2): 264–88. https://doi.org/10.1111/j.1468-5957.2011.02261.x.
Ammann, Manuel, et al. “Is There Really No Conglomerate Discount?” Journal of Business Finance and Accounting, vol. 39, no. 1-2, 2012, pp. 264–88, https://doi.org/10.1111/j.1468-5957.2011.02261.x.
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