The Diversification Discount: It's All Cash Flows

2004 ◽  
Author(s):  
Bill B. Francis ◽  
Delroy M. Hunter ◽  
Iftekhar Hasan
Keyword(s):  
Cash Flows ◽  
Diversification Discount

Why Do Firms with Diversification Discounts Have Higher Expected Returns?

2010 ◽  
Vol 45 (6) ◽  
pp. 1367-1390 ◽  
Author(s):  
Todd Mitton ◽  
Keith Vorkink
Keyword(s):  
Cash Flows ◽  
Expected Returns ◽  
Excess Returns ◽  
Diversification Discount ◽  
Single Segment ◽  
Empirical Tests ◽  
Diversified Firms

AbstractA diversified firm can trade at a discount to a matched portfolio of single-segment firms if the diversified firm has either lower expected cash flows or higher expected returns than the single-segment firms. We study whether firms with diversification discounts have higher expected returns in order to compensate investors for offering less upside potential (or skewness exposure) than focused firms. Our empirical tests support this hypothesis. First, we find that focused firms offer greater skewness exposure than diversified firms. Second, we find that diversified firms have significantly larger discounts when the diversified firm offers less skewness than matched single-segment firms. Finally, we find that up to 53% of the excess returns received on diversification-discount firms relative to diversification-premium firms can be explained by differences in exposure to skewness.

Attitude of bank credit managers and analysts towards firm diversification in Mozambique

2017 ◽  
Vol 9 (3) ◽  
pp. 182-204
Author(s):  
Ibeawuchi Ibekwe
Keyword(s):  
Cash Flows ◽  
Bank Credit ◽  
Diversification Discount ◽  
Chi Square ◽  
Content Type ◽  
Corporate Managers ◽  
Firm Diversification ◽  
Unrelated Diversification ◽  
Chi Square Test ◽  
Diversified Firms

PurposeThe purpose of this paper is to survey bank credit managers and analysts in Mozambique regarding their attitude toward firm diversification. Design/methodology/approachForty-five credit managers and analysts from 23 banks in Mozambique were surveyed about their views on diversification and diversified firms. Questionnaires were used. Data were analyzed using chi-square test and binomial test. FindingsCredit analysts and managers in Mozambique have a generally positive attitude toward diversification. This is mainly due to the coinsurance effects and stability of cash flows that diversification could provide. They, however, prefer moderately diversified to highly diversified firms and related to unrelated diversified firms. This is a puzzle, given the expectation that greater unrelated diversification is better able to provide coinsurance. Practical implicationsThe study provides information that is useful for understanding the diversification–cost of capital relationship and could help corporate managers in making capital structure decisions. Originality/valuePrevious researchers have not studied the attitude of credit managers/analysts toward diversification in Mozambique using the survey approach. The study contributes to the literature on diversification and access to external finance, the diversification discount and cash holding behavior of firms.

The Diversification Discount: Cash Flows Versus Returns

2001 ◽  
Vol 56 (5) ◽  
pp. 1693-1721 ◽  
Author(s):  
Owen A. Lamont ◽  
Christopher Polk
Keyword(s):  
Cash Flows ◽  
Diversification Discount

Why Do Firms Write Off Their Goodwill? A Comparison of Different Accounting Systems

2015 ◽  
pp. 23-40 ◽  
Author(s):  
Francesco Avallone ◽  
Claudia Gabbioneta ◽  
Paola Ramassa ◽  
Marco Sorrentino
Keyword(s):  
Good Deal ◽  
Financial Statements ◽  
Cash Flows ◽  
Accounting System ◽  
Anglo Saxon ◽  
Accounting Systems ◽  
Ifrs Adoption ◽  
The Future

Increased comparability of financial statements across adopting countries is one of the main objectives of IFRS adoption. The level of achievement of this objective, however, is still debatable. While some studies have documented that crosscountry comparability of financial statements has increased after IFRS adoption, other studies have found that comparability has actually decreased since 2005. We contribute to this debate by studying whether the motivations for goodwill writeoff are the same or vary across countries with different accounting systems. Although a good deal of research has investigated the motivations for goodwill writeoff, our study is the first to analyze whether these motivations vary across countries with different accounting systems. We find that firms that expect low cash flows in the future are more likely to report goodwill write-offs if they are located in countries with an Anglo-Saxon accounting system than if they are located in countries with a Continental accounting system. These results suggest that IFRS are "interpreted" differently in different countries and that harmonization of financial statements has not been fully achieved yet.

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