Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/218002 
Year of Publication: 
1988
Citation: 
[Journal:] South African Journal of Business Management [ISSN:] 2078-5976 [Volume:] 19 [Issue:] 4 [Publisher:] African Online Scientific Information Systems (AOSIS) [Place:] Cape Town [Year:] 1988 [Pages:] 127-132
Publisher: 
African Online Scientific Information Systems (AOSIS), Cape Town
Abstract: 
Existent financial theory is unable to explain whether on aggregate conglomeration is beneficial to either individual shareholders or to the economy. Both advantages and disadvantages can be listed for the conglomeration process and it is thus an empirical question as to whether or not shareholders really benefit from conglomeration. In this paper the long-term profitability of conglomerates is examined in an attempt to determine whether or not such shareholders earn superior returns on aggregate. This is done by contrasting the stock market performance of a sample of South African (S.A.) conglomerates over a six-year period with the performance of the overall market. In addition, their performance is contrasted with that of a random portfolio of non-conglomerate companies. Finally, a pseudo-conglomerate portfolio was constructed for each conglomerate in such a way that each portfolio had the same asset structure as its matched conglomerate. The performance of the conglomerates was then contrasted with that of the pseudo-conglomerate portfolio using market returns, return on assets and return on equity. The results indicate that on aggregate, the conglomerates significantly underperform non-conglomerates. This is consistent with the view that conglomeration is in the interest of management rather than in the interest of the shareholders.
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Creative Commons License: 
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Document Type: 
Article

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