Abstract
We examine the effect of corporate diversification by comparing abnormal returns between portfolios of diversified firms and focused firms. Our study covers US firms for the years 1976–2009 and compares abnormal returns over 12, 24, and 36-month windows. Initial univariate tests show mixed results, though after we control for firm, industry, and time effects, we find convincing evidence that diversified-firm portfolios outperform focused-firm portfolios over the 3-year term. Our findings indicate that the benefits of corporate diversification are captured over longer investing horizons.
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