Corporate Diversification and the Market Value of R&D Expenditure Increase

Investigating the Effect of Corporate Diversification on the Value of Companies in Tehran Stock Exchange

Management and Organizational Studies ◽

10.5430/mos.v5n2p27 ◽

2018 ◽

Vol 5 (2) ◽

pp. 27

Author(s):

Hoshang Amiri ◽

Samare Sawari ◽

Mahdi Bazrafshan

Keyword(s):

Firm Value ◽

Positive Impact ◽

Stock Exchange ◽

Market Value ◽

Corporate Diversification ◽

Growth Opportunities ◽

Enterprise Value ◽

Natural Logarithm ◽

Study Population ◽

Independent Variable

This research examined effect of corporate diversification on the firm's value in companies listed in Tehran StockExchange during the years 2006 till 2013. To answer the question posed one hypothesis. The hypothesis examined therelationship between the company's diversification and growth opportunities. Dependent variable of the study iscompany's value. Enterprise value has been calculated by natural logarithm of the market value per share of thecompany's expected value. The independent variable of this research is diversification that was calculated by entropyindex. To select the sample size of the study population the systematic elimination method is used, and finally 263companies that were consistent with the research, was selected. To test the hypothesis of Panel data is used. The resultsshow a significant positive impact between diversification and company's firm value.

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Corporate Diversification, Manager's Incentive, And Shareholder Wealth

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v17i3.2081 ◽

2011 ◽

Vol 17 (3) ◽

Cited By ~ 1

Author(s):

C. Joe Ueng ◽

Donald W. Wells

Keyword(s):

Stock Returns ◽

Market Value ◽

Shareholder Wealth ◽

Corporate Diversification ◽

Font Size ◽

Acquiring Firms ◽

The Impact ◽

Incentive Ratio ◽

Equity Holdings

This study examines the impact of managers' incentives and corporate diversification on the returns to shareholders of acquiring firms in acquisition activities. Managers' incentives are measured by creating an incentive ratio (IR). The IR is constructed by dividing the market value of the equity holdings of the three managers with the largest equity shareholding within the firm by their annual compensation. We hypothesize that managers with a high IR are more likely to undertake acquisitions that benefit the shareholders of the acquiring firm than are managers with a low IR. We further hypothesize that the acquisition of a firm that is a focused acquisition (i.e., same industry) will produce greater returns to the acquiring firm's shareholders than will diversified acquisitions.  Results indicate significant positive returns to acquiring firms whose managers have high IRs. While diversified acquisitions produce insignificant negative stock returns, focused acquisitions, on average, generate significant positive stock returns for acquiring firms. Results also suggest that managers with a low IR consistently undertake more diversified acquisitions than focused acquisitions, that the group with the combination of high IRs and focused acquisitions produces the highest returns among four groups, and that the group with the opposite combination produces the lowest returns.

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