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The Cost of Diversity: The Diversification Discount and Inefficient Investment
16 references·16 citing·40 second hopsampled
The Cost of Diversity: The Diversification Discount and Inefficient Investment (1998)The Cost of Diversity: The Diversificatio…The Dark Side of Internal Capital Markets: Divisional Rent‐Seeking and Inefficient Investment (2000)The Dark Side of Internal Cap…Eclipse of the Public Corporation (1999)Eclipse of the Public Corpora…Strategy and Structure (1997)Strategy and StructureInternal Capital Markets and the Competition for Corporate Resources (1997)Internal Capital Markets and …Diversification's effect on firm value (1995)Diversification's effect on f…Tobin's q, Corporate Diversification, and Firm Performance (1994)Tobin's q, Corporate Diversif…Multitask Principal–Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design (1991)Multitask Principal–Agent Ana…Managerial discretion and optimal financing policies (1990)Managerial discretion and opt…Do Managerial Objectives Drive Bad Acquisitions? (1990)Do Managerial Objectives Driv…The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration (1986)The Costs and Benefits of Own…Strategy and Structure: (1986)Strategy and Structure:Determinants of corporate borrowing (1977)Determinants of corporate bor…Risk, Return, and Equilibrium: Empirical Tests (1973)Risk, Return, and Equilibrium…Industry Structure, Market Rivalry, and Public Policy (1973)Industry Structure, Market Ri…Inequity In Social Exchange (1965)Inequity In Social ExchangeThe Nature of the Firm (1937)The Nature of the FirmCEO Political Ideology and Mergers and Acquisitions Decisions (2016)CEO Political Ideology and Me…Technological diversification, core-technology competence, and firm growth (2015)Technological diversification…Do controlling shareholders' expropriation incentives imply a link between corporate governance and firm value? Theory and evidence (2012)Do controlling shareholders' …Financial constraints and investment efficiency: Internal capital allocation across the business cycle (2010)Financial constraints and inv…Discretionary Disclosure in Financial Reporting: An Examination Comparing Internal Firm Data to Externally Reported Segment Data (2010)Discretionary Disclosure in F…A Theory of Firm Scope* (2010)A Theory of Firm Scope*Empire-Building or Bridge-Building? Evidence from New CEOs’ Internal Capital Allocation Decisions (2009)Empire-Building or Bridge-Bui…Corporate Performance, Board Structure, and Their Determinants in the Banking Industry (2008)Corporate Performance, Board …A Theory of Firm Scope (2008)A Theory of Firm ScopeShould business groups be dismantled? The equilibrium costs of efficient internal capital markets (2005)Should business groups be dis…Should Banks Be Diversified? Evidence from Individual Bank Loan Portfolios (2005)Should Banks Be Diversified? …Model Uncertainty, Limited Market Participation, and Asset Prices (2005)Model Uncertainty, Limited Ma…Is There a Diversification Discount in Financial Conglomerates? (2005)Is There a Diversification Di…Business Groups in Emerging Markets: Paragons or Parasites? (2005)Business Groups in Emerging M…Dividend Taxes and Corporate Behavior: Evidence from the 2003 Dividend Tax Cut (2004)Dividend Taxes and Corporate …Information Production and Capital Allocation: Decentralized vs. Hierarchical Firms (2000)Information Production and Ca…Management. Tasks, Responsibilities, Practices. (1975)Underinvestment and Incompetence as Responses to Radical Innovation: Evidence from the Photolithographic Alignment Equipment Industry (1993)Electronic Mail as the Medium of Managerial Choice (1994)Innovation: A Guide to the Literature (2009)The Cost of Capital, Corporation Finance and the Theory of Investment (1958)Dividend Policy, Growth, and the Valuation of Shares (1961)Theory of the firm: Managerial behavior, agency costs and ownership structure (1976)The Capital Structure Puzzle (1984)A Survey of Corporate Governance (1997)Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers (1986)The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems (1993)Higher market valuation of companies with a small board of directors (1996)Investor Protection and Corporate Valuation (2002)Digital Business Strategy: Toward a Next Generation of Insights (2013)CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK* (1964)The Behavior of Stock-Market Prices (1965)THE VALUATION OF RISK ASSETS AND THE SELECTION OF RISKY INVESTMENTS IN STOCK PORTFOLIOS AND CAPITAL BUDGETS**This paper is another in a series of interrelated theoretical and statistical studies of corporate financial and investment policies being made under grants from the Rockefeller Foundation, and more recently the Ford Foundation, to the Harvard Business School. The generous support for this work is most gratefully acknowledged. The author is also much indebted to his colleagues Professors Bishop, Christenson, Kahr, Raiffa, and (especially) Schlaifer, for extensive discussion and commentary on an earlier draft of this paper; but responsibility for any errors or imperfections remains strictly his own.[Professor Sharpe's paper, “Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk” (Journal of Finance, September 1964) appeared after this paper was in final form and on its way to the printers. My first section, which parallels the first half of his paper (with corresponding conclusions), sets the algebraic framework for sections II, III and VI, (which have no counterpart in his paper) and for section IV on the equilibrium prices of risk assets, concerning which our results differ significantly for reasons which will be explored elsewhere. Sharpe does not take up the capital budgeting problem developed in section V below.] (1975)Common risk factors in the returns on stocks and bonds (1993)On Persistence in Mutual Fund Performance (1997)The Problem of Social Cost (1960)Vertical Integration, Appropriable Rents, and the Competitive Contracting Process (1978)Comparative Economic Organization: The Analysis of Discrete Structural Alternatives (1991)The quality of government (1999)The New Institutional Economics: Taking Stock, Looking Ahead (2000)Corporate financing and investment decisions when firms have information that investors do not have (1984)Firms, Contracts, and Financial Structure (1995)A Theory of Social Comparison Processes (1954)A Theory of Cognitive Dissonance (1957)Exchange and Power in Social Life. (1965)Social stigma and self-esteem: The self-protective properties of stigma. (1989)FOUNDATION FOR A GENERAL STRAIN THEORY OF CRIME AND DELINQUENCY* (1992)Understanding knowledge sharing in virtual communities: An integration of social capital and social cognitive theories (2006)The choice of organizational form The case of franchising (1987)The Economic Institutions of Capitalism (1987)Fairness and Retaliation: The Economics of Reciprocity (2000)Intrinsic and Extrinsic Motivation (2003)Financing Constraints and Corporate Investment (1987)The Cross-Section of Expected Stock Returns (1992)Enjoying the Quiet Life? Corporate Governance and Managerial Preferences (2003)Dynamic capabilities and strategic management (1997)
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References

  • 1937The Nature of the Firm23,826 cited
  • 1973Risk, Return, and Equilibrium: Empirical Tests14,248 cited
  • 1977Determinants of corporate borrowing13,160 cited
  • 1965Inequity In Social Exchange10,813 cited
  • 1986The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration9,369 cited
  • 1991Multitask Principal–Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design6,042 cited
  • 1990Managerial discretion and optimal financing policies3,679 cited
  • 1986Strategy and Structure:3,497 cited
  • 1995Diversification's effect on firm value3,069 cited
  • 1994Tobin's q, Corporate Diversification, and Firm Performance2,437 cited
  • 1973Industry Structure, Market Rivalry, and Public Policy2,389 cited
  • 1990Do Managerial Objectives Drive Bad Acquisitions?1,912 cited
  • 1997Strategy and Structure1,793 cited
  • 1997Internal Capital Markets and the Competition for Corporate Resources1,779 cited
  • 1999Eclipse of the Public Corporation1,656 cited
  • 2000The Dark Side of Internal Capital Markets: Divisional Rent‐Seeking and Inefficient Investment

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Cited by

  • 2000Information Production and Capital Allocation: Decentralized vs. Hierarchical Firms365 cited
  • 2005Model Uncertainty, Limited Market Participation, and Asset Prices347 cited
  • 2005Should Banks Be Diversified? Evidence from Individual Bank Loan Portfolios266 cited
  • 2005Business Groups in Emerging Markets: Paragons or Parasites?256 cited
  • 2005Is There a Diversification Discount in Financial Conglomerates?248 cited
  • 2005Should business groups be dismantled? The equilibrium costs of efficient internal capital markets240 cited
  • 2010A Theory of Firm Scope*222 cited
  • 2010Financial constraints and investment efficiency: Internal capital allocation across the business cycle218 cited
  • 2010Discretionary Disclosure in Financial Reporting: An Examination Comparing Internal Firm Data to Externally Reported Segment Data213 cited
  • 2008Corporate Performance, Board Structure, and Their Determinants in the Banking Industry199 cited
  • 2015Technological diversification, core-technology competence, and firm growth197 cited
  • 2008A Theory of Firm Scope183 cited
  • 2012Do controlling shareholders' expropriation incentives imply a link between corporate governance and firm value? Theory and evidence182 cited
  • 2016CEO Political Ideology and Mergers and Acquisitions Decisions175 cited
  • 2009Empire-Building or Bridge-Building? Evidence from New CEOs’ Internal Capital Allocation Decisions172 cited
  • 2004Dividend Taxes and Corporate Behavior: Evidence from the 2003 Dividend Tax Cut169 cited