Citation
Diversification's Effect on Firm Value
TL;DR
Diversified firms trade at 13-15% discount to focused firms
Landmark academic study quantifying the diversification discount at 13-15%. Provides empirical foundation for understanding why conglomerates trade below the sum of their parts and why separation can create value.
Key Findings from Berger & Ofek (1995)
- Diversified firms trade at 13-15% discount to focused firms
- Discount increases with number of segments
- Market prefers pure-play companies for valuation clarity
- Conglomerate discount destroys shareholder value