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The valuation discount of multi‐segment firms in Australia
Author(s) -
Fleming Grant,
Oliver Barry,
Skourakis Steven
Publication year - 2003
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/1467-629x.00087
Subject(s) - valuation (finance) , diversification (marketing strategy) , earnings , portfolio , financial economics , business , econometrics , economics , sample (material) , actuarial science , accounting , marketing , chemistry , chromatography
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.