Does diversification create value in the presence of external financing constraints?
Subtitle: evidence from the 2008-2009 financial crisis
By: Venkat Kuppuswamy, Belén Villalonga
Contributors: Villalonga, Belén; Harvard Business School
Edition: Rev.
Series: Working paper / Harvard Business School -- 10-101; Working paper (Harvard Business School) -- 10-101.
Publisher: Harvard Business School
Published: 2010
Place of publication: [Boston]
Language: eng
Number of pages: 55
Description: We show that the value of corporate diversification increased during the 2007-2009 financial crisis. Diversification gave firms both financing and investment advantages. First, conglomerates became significantly more leveraged relative to comparable focused firms. Second, conglomerates' access to internal capital markets became more valuable not just because external capital markets became more costly, but also because the efficiency of internal capital allocation increased significantly during the crisis. Our analysis provides new evidence on how the diversification discount and its drivers vary with financial constraints and economic conditions, and suggests that corporate diversification can serve an important insurance function for investors.
Notes: "May 2010, revised November 2010"--Publisher's website.

Includes bibliographical references.