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Is the diversification discount caused by the book value bias of debt?

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2010

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Müller, Sebastian

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http://nbn-resolving.de/urn:nbn:de:bsz:352-127207
DOI (zitierfähiger Link)
https://doi.org/10.1016/j.jbankfin.2010.02.017
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Journal of Banking & Finance. 2010, 34(10), pp. 2307-2317. Available under: doi: 10.1016/j.jbankfin.2010.02.017

Zusammenfassung

We analyze whether the diversification discount is driven by the book value bias of corporate debt. Book values of debt may be a more downward biased proxy of the market value of debt for diversified firms, relative to undiversified firms, as diversification leads to lower firm risk. Thus, measures of firm value based on book values of debt undervalue diversified firms relative to focused firms. Our paper complements recent literature which uses market values to test the risk reduction hypothesis for a subsample of firms for which debt is traded. Alternatively, we employ market value of debt estimates for the whole firm universe. Consistent with the above hypothesis, we show that the use of book values of debt underestimates the value of diversified firms. There is no discount for mainly equity financed firms and lower distress risk and equity volatility for diversified firms. More concentrated ownership increases firm valuation.

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Fachgebiet (DDC)
330 Wirtschaft

Schlagwörter

Diversification, diversification discount, conglomerate discount, internal capital markets, option pricing, debt valuation, merton model, corporate governance, ownership structure

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ISO 690GLASER, Markus, Sebastian MÜLLER, 2010. Is the diversification discount caused by the book value bias of debt?. In: Journal of Banking & Finance. 2010, 34(10), pp. 2307-2317. Available under: doi: 10.1016/j.jbankfin.2010.02.017
BibTex
@article{Glaser2010diver-12720,
  year={2010},
  doi={10.1016/j.jbankfin.2010.02.017},
  title={Is the diversification discount caused by the book value bias of debt?},
  number={10},
  volume={34},
  journal={Journal of Banking & Finance},
  pages={2307--2317},
  author={Glaser, Markus and Müller, Sebastian}
}
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