The cost of diversity: the diversification discount and inefficient investment
In a simple model of capital budgeting in a diversified firm where headquarters has limited power, we show that funds are allocated towards the most inefficient divisions. The distortion is greater the more diverse are the investment opportunities of the firm's divisions. We test these implicat...
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| Main Authors: | , , |
|---|---|
| Format: | Book |
| Language: | English |
| Published: |
Cambridge, Mass.
1998
|
| Series: | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series
6368 |
| Subjects: | |
| Online Access: | Volltext |
| Summary: | In a simple model of capital budgeting in a diversified firm where headquarters has limited power, we show that funds are allocated towards the most inefficient divisions. The distortion is greater the more diverse are the investment opportunities of the firm's divisions. We test these implications on a panel of diversified firms in the U.S. during the period 1979-1993. We find that i) diversified firms mis-allocate investment funds; ii) the extent of mis-allocation is positively related to the diversity of the investment opportunities across divisions; iii) the discount at which these diversified firms trade is positively related to the extent of the investment mis-allocation and to the diversity of the investment opportunities across divisions. |
| Physical Description: | 50 S. |
Staff View
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| 490 | 1 | |a National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |v 6368 | |
| 520 | 3 | |a In a simple model of capital budgeting in a diversified firm where headquarters has limited power, we show that funds are allocated towards the most inefficient divisions. The distortion is greater the more diverse are the investment opportunities of the firm's divisions. We test these implications on a panel of diversified firms in the U.S. during the period 1979-1993. We find that i) diversified firms mis-allocate investment funds; ii) the extent of mis-allocation is positively related to the diversity of the investment opportunities across divisions; iii) the discount at which these diversified firms trade is positively related to the extent of the investment mis-allocation and to the diversity of the investment opportunities across divisions. | |
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| spelling | Rajan, Raghuram Govind 1963- Verfasser (DE-588)128432357 aut The cost of diversity the diversification discount and inefficient investment Raghuram Rajan ; Henri Servaes ; Luigi Zingales Cambridge, Mass. 1998 50 S. txt rdacontent n rdamedia nc rdacarrier National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series 6368 In a simple model of capital budgeting in a diversified firm where headquarters has limited power, we show that funds are allocated towards the most inefficient divisions. The distortion is greater the more diverse are the investment opportunities of the firm's divisions. We test these implications on a panel of diversified firms in the U.S. during the period 1979-1993. We find that i) diversified firms mis-allocate investment funds; ii) the extent of mis-allocation is positively related to the diversity of the investment opportunities across divisions; iii) the discount at which these diversified firms trade is positively related to the extent of the investment mis-allocation and to the diversity of the investment opportunities across divisions. Allocation de ressources - Modèles économétriques ram Budget d'investissement - Modèles économétriques ram Diversification (économie politique) - États-Unis - Modèles économétriques ram Investissements de capitaux - États-Unis - Modèles économétriques ram Ökonometrisches Modell Capital budget Econometric models Capital investments United States Econometric models Diversification in industry United States Econometric models Resource allocation Econometric models Mischkonzern (DE-588)4140747-7 gnd rswk-swf Diversifikation (DE-588)4012539-7 gnd rswk-swf Investitionsrechnung (DE-588)4027575-9 gnd rswk-swf USA Mischkonzern (DE-588)4140747-7 s Diversifikation (DE-588)4012539-7 s Investitionsrechnung (DE-588)4027575-9 s DE-604 Servaes, Henri Verfasser aut Zingales, Luigi 1963- Verfasser (DE-588)128432322 aut Erscheint auch als Online-Ausgabe National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series 6368 (DE-604)BV002801238 6368 http://papers.nber.org/papers/w6368.pdf kostenfrei Volltext |
| spellingShingle | Rajan, Raghuram Govind 1963- Servaes, Henri Zingales, Luigi 1963- The cost of diversity the diversification discount and inefficient investment National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series Allocation de ressources - Modèles économétriques ram Budget d'investissement - Modèles économétriques ram Diversification (économie politique) - États-Unis - Modèles économétriques ram Investissements de capitaux - États-Unis - Modèles économétriques ram Ökonometrisches Modell Capital budget Econometric models Capital investments United States Econometric models Diversification in industry United States Econometric models Resource allocation Econometric models Mischkonzern (DE-588)4140747-7 gnd Diversifikation (DE-588)4012539-7 gnd Investitionsrechnung (DE-588)4027575-9 gnd |
| subject_GND | (DE-588)4140747-7 (DE-588)4012539-7 (DE-588)4027575-9 |
| title | The cost of diversity the diversification discount and inefficient investment |
| title_auth | The cost of diversity the diversification discount and inefficient investment |
| title_exact_search | The cost of diversity the diversification discount and inefficient investment |
| title_full | The cost of diversity the diversification discount and inefficient investment Raghuram Rajan ; Henri Servaes ; Luigi Zingales |
| title_fullStr | The cost of diversity the diversification discount and inefficient investment Raghuram Rajan ; Henri Servaes ; Luigi Zingales |
| title_full_unstemmed | The cost of diversity the diversification discount and inefficient investment Raghuram Rajan ; Henri Servaes ; Luigi Zingales |
| title_short | The cost of diversity |
| title_sort | the cost of diversity the diversification discount and inefficient investment |
| title_sub | the diversification discount and inefficient investment |
| topic | Allocation de ressources - Modèles économétriques ram Budget d'investissement - Modèles économétriques ram Diversification (économie politique) - États-Unis - Modèles économétriques ram Investissements de capitaux - États-Unis - Modèles économétriques ram Ökonometrisches Modell Capital budget Econometric models Capital investments United States Econometric models Diversification in industry United States Econometric models Resource allocation Econometric models Mischkonzern (DE-588)4140747-7 gnd Diversifikation (DE-588)4012539-7 gnd Investitionsrechnung (DE-588)4027575-9 gnd |
| topic_facet | Allocation de ressources - Modèles économétriques Budget d'investissement - Modèles économétriques Diversification (économie politique) - États-Unis - Modèles économétriques Investissements de capitaux - États-Unis - Modèles économétriques Ökonometrisches Modell Capital budget Econometric models Capital investments United States Econometric models Diversification in industry United States Econometric models Resource allocation Econometric models Mischkonzern Diversifikation Investitionsrechnung USA |
| url | http://papers.nber.org/papers/w6368.pdf |
| volume_link | (DE-604)BV002801238 |
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