TY  - JOUR
AU  - Lamont,Owen
AU  - Polk,Christopher
TI  - Does Diversification Destroy Value? Evidence From Industry Shocks
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7803
PY  - 2000
Y2  - July 2000
UR  - http://www.nber.org/papers/w7803
L1  - http://www.nber.org/papers/w7803.pdf
N1  - Author contact info:
Owen Lamont
Department of Economics
Harvard University
Cambridge MA 02138
E-Mail: owen.lamont@yale.edu

Christopher Polk
Department of Finance
London School of Economics
Houghton St.
London WC2A 2AE
UK
Tel: +44 (0)20 7849 4917
Fax: +44 (0)20 7852 3580
E-Mail: c.polk@lse.ac.uk
AB  - Does corporate diversification reduce shareholder value?  Since firms endogenously choose to diversify, exogenous variation in diversification is necessary in order to draw inferences about the causal effect.  We examine changes in the within-firm dispersion of industry investment, or  diversity.'  We find that exogenous changes in diversity, due to changes in industry investment, are negatively related to firm value.  Thus diversification destroys value, consistent with the inefficient internal capital markets hypothesis. This finding is not caused by measurement error.  We also find that exogenous changes in industry cash flow diversity are negative related to firm value.
ER  -