Dissecting Conglomerate Valuations

ABSTRACT We develop a new method to estimate Tobin's Qs of conglomerate divisions without relying on standalone firms. Divisional Qs differ considerably from those of standalone firms across industries, over time, and in their sensitivity to economic shocks. The differences are explained by int...

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Veröffentlicht in:The Journal of finance (New York) 2022-04, Vol.77 (2), p.1097-1131
Hauptverfasser: BOGUTH, OLIVER, DUCHIN, RAN, SIMUTIN, MIKHAIL
Format: Artikel
Sprache:eng
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Zusammenfassung:ABSTRACT We develop a new method to estimate Tobin's Qs of conglomerate divisions without relying on standalone firms. Divisional Qs differ considerably from those of standalone firms across industries, over time, and in their sensitivity to economic shocks. The differences are explained by intraconglomerate covariance structures and access to internal capital markets that mitigate external financing frictions. Consequently, the Qs capture variation in the allocation of assets in the economy: within firms through internal capital markets and across focused and diversified firms through diversifying acquisitions. Overall, our method provides opportunities to study the economic mechanisms that explain corporate diversification.
ISSN:0022-1082
1540-6261
DOI:10.1111/jofi.13117