The valuation discount of multi-segment firms in Australia

Authors: Fleming G.¹; Oliver B.²; Skourakis S.³

Source: Accounting and Finance, Volume 43, Number 2, July 2003 , pp. 167-185(19)

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Abstract:

This paper refines the Berger and Ofek (1995) methodology to estimate the valuation discount of multi-segment firms in Australia between 1988 and 1998. Evidence is found that based on earnings before tax, the sample of multi-segment firms traded at a 29 per cent greater discount than a comparable portfolio of single segment firms over the sample period. To explain the results further analysis shows that the valuation discount was driven by poorly performing multi-segment firms rather than multi-segment firms per se. This raises questions about studies that conclude that diversification is value destroying.

Keywords: Ownership structure; Diversification

Document Type: Research article

DOI: http://dx.doi.org/10.1111/1467-629X.00087

Affiliations: 1: Wilshire Australia, Canberra, Australia and the School of Finance and Applied Statistics, Australian National University, ACT, Australia 0200 2: School of Finance and Applied Statistics, Australian National University, ACT, Australia 0200 3: Deloitte Touche Tohmatsu, Sydney, Australia

Publication date: 2003-07-01