Two essays on corporate financial policy
Moya, Ivonne A.
MetadataShow full item record
My dissertation consists of two essays. In the first essay, I investigate the value effects of both industrial and international diversification between 1998 and 2004. The greater consistency and disaggregation of segment data imposed by the introduction of SFAS 131 in 1997 allows me to more accurately estimate the value effects of industrial (related and unrelated) and international diversification strategies. I document a significant average industrial diversification discount and find that multi-business firms are discounted regardless of whether diversification is related or unrelated. The industrial diversification discount persists over time and is robust to corrections for the endogeneity of the diversification decision. I find that international diversification also reduces value, but to a lesser extent than industrial diversification. In fact, international diversification mitigates the negative effects of industrial diversification. Taken together, my findings cast doubt on the recent contention that the diversification discount is simply an artifact of inaccurate segment reporting requirements. In the second essay, we investigate the effect of foreign acquisition announcements on local markets by observing the reaction of targets’ rivals to acquisitions. We focus on acquisitions in which U.S. firms acquire targets in either emerging markets or developed markets and find that, on average, acquisitions of emerging market targets have a positive impact on targets’ rivals. Moreover, this positive reaction is significantly greater for emerging market rivals than for developed market rivals, even after controlling for firm, acquisition, industry, and country characteristics. These results are of particular interest to individuals or firms planning on investing in emerging markets.