Is there an optimally diversified conglomerate? Gleaning answers from capital markets

Is there an optimally diversified conglomerate? Gleaning answers from capital markets Motivated by recent productivity-based theories of diversification, we argue that only conglomerates with an optimal degree of diversification can utilize their comparative advantages across various industries and achieve economies of scope by eliminating redundancies. Evidence from both corporate bond and equity markets suggests that optimally diversified conglomerates consist of either (1) approximately five equally weighted divisions, or (2) one large core business segment that roughly accounts for 75 % sales. Moreover, the relative size of divisions has a critical impact on how diversification affects credit spreads and excess values. Nonparity among divisions correlates with greater costs that increase with the number of divisions. Review of Quantitative Finance and Accounting Springer Journals

Is there an optimally diversified conglomerate? Gleaning answers from capital markets

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Springer US
Copyright © 2016 by Springer Science+Business Media New York
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
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