Corporate diversification, executive compensation and firm value: Evidence from Australia

Research output: Contribution to journalArticleResearchpeer-review

Abstract

We estimate the effect of corporate diversification on firm value using a sample of 766 segment-year observations during 2004-2008 for firms listed on the Australian Stock Exchange as of August 2009. In addition to conventionally used measures of diversification, we develop five new measures of diversification that explicitly take into account the degree to which a multi-segment firm s various segments are in related lines of business. We use three different excess value measures to estimate the valuation effect of diversification. We find that multi-segment firms in our sample enjoyed a significant diversification premium that ranges from 12.4 to 18 depending on the measures of diversification and excess value. We also find some evidence that multi-segment firms benefit more from diversification when their executives are motivated more through long-term incentives such as stock and stock options.
Original languageEnglish
Pages (from-to)395 - 414
Number of pages20
JournalAustralian Journal of Management
Volume39
Issue number3
DOIs
Publication statusPublished - 2014

Cite this

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title = "Corporate diversification, executive compensation and firm value: Evidence from Australia",
abstract = "We estimate the effect of corporate diversification on firm value using a sample of 766 segment-year observations during 2004-2008 for firms listed on the Australian Stock Exchange as of August 2009. In addition to conventionally used measures of diversification, we develop five new measures of diversification that explicitly take into account the degree to which a multi-segment firm s various segments are in related lines of business. We use three different excess value measures to estimate the valuation effect of diversification. We find that multi-segment firms in our sample enjoyed a significant diversification premium that ranges from 12.4 to 18 depending on the measures of diversification and excess value. We also find some evidence that multi-segment firms benefit more from diversification when their executives are motivated more through long-term incentives such as stock and stock options.",
author = "Chongwoo Choe and Tania Dey and Vinod Mishra",
year = "2014",
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language = "English",
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journal = "Australian Journal of Management",
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Corporate diversification, executive compensation and firm value: Evidence from Australia. / Choe, Chongwoo; Dey, Tania; Mishra, Vinod.

In: Australian Journal of Management, Vol. 39, No. 3, 2014, p. 395 - 414.

Research output: Contribution to journalArticleResearchpeer-review

TY - JOUR

T1 - Corporate diversification, executive compensation and firm value: Evidence from Australia

AU - Choe, Chongwoo

AU - Dey, Tania

AU - Mishra, Vinod

PY - 2014

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N2 - We estimate the effect of corporate diversification on firm value using a sample of 766 segment-year observations during 2004-2008 for firms listed on the Australian Stock Exchange as of August 2009. In addition to conventionally used measures of diversification, we develop five new measures of diversification that explicitly take into account the degree to which a multi-segment firm s various segments are in related lines of business. We use three different excess value measures to estimate the valuation effect of diversification. We find that multi-segment firms in our sample enjoyed a significant diversification premium that ranges from 12.4 to 18 depending on the measures of diversification and excess value. We also find some evidence that multi-segment firms benefit more from diversification when their executives are motivated more through long-term incentives such as stock and stock options.

AB - We estimate the effect of corporate diversification on firm value using a sample of 766 segment-year observations during 2004-2008 for firms listed on the Australian Stock Exchange as of August 2009. In addition to conventionally used measures of diversification, we develop five new measures of diversification that explicitly take into account the degree to which a multi-segment firm s various segments are in related lines of business. We use three different excess value measures to estimate the valuation effect of diversification. We find that multi-segment firms in our sample enjoyed a significant diversification premium that ranges from 12.4 to 18 depending on the measures of diversification and excess value. We also find some evidence that multi-segment firms benefit more from diversification when their executives are motivated more through long-term incentives such as stock and stock options.

U2 - 10.1177/0312896213499027

DO - 10.1177/0312896213499027

M3 - Article

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JO - Australian Journal of Management

JF - Australian Journal of Management

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