The Diversification Discount: Are Control Mechanisms Less Effective in Diversified Firms?

Purpose: This study investigates whether the market value discount experienced by multi-segment, (diversified) firms versus single-segment (focused) is associated with relative levels of internal and external governance. The goal to shed light on diversification examining role control mechanisms.
 Methodology: Using a sample single- multi-segment over period 1996-2015, we examine relationship between firm value, level corporate diversification, different governance mechanisms. We use multivariate regression analysis explore effect varies across focused diversified strong substitutes for lack control.
 Findings: Our results indicate negative correlation diversification. Additionally, find positive However, impact these mechanisms significantly weaker in firms.
 Unique Contributions Theory, Policy Practice: provides evidence that agency problems are more pronounced firms, along three dimensions. Firstly, lower have this greater firms. Secondly, control, as measured institutional ownership financial analysts' coverage, positively related and, lesser extent, Lastly, but not suggests investors analysts restricted under complex operational informational structure.