(), Peter Högfeldt
() and Mattias Nilsson
Henrik Cronqvist: Dept. of Finance, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden
Peter Högfeldt: Dept. of Finance, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden
Mattias Nilsson: Dept. of Finance, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden
Abstract: Using data from real estate corporations, we report that related diversification over different property types is associated with a discount while geographical diversification has no significant effect on shareholder value. Related diversification in order to exploit potential synergistic gains does not improve operating performance as measured by return on assets (ROA). Applying an ex ante measure, which discriminates between focusing and non-focusing corporate strategies, we find that corporations expected to pursue non-focusing (diversifying or unclear) strategies are valued at a 20% discount, and are controlled by large private owners. This ex ante diversification discount is a measure of agency costs associated with highly concentrated private ownership. Expected corporate strategy is a previously neglected but more fundamental determinant of shareholder value than contemporaneous focus per se.
45 pages, January 29, 1998
Note: This working paper is replaced by no. 294
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