Claessens, Stijn Djankov, Simeon Fan, Joseph Lang, Larry
Year of Publication:
WIDER Discussion Papers // World Institute for Development Economics (UNU-WIDER) 2001/127
We document that firms in eight East Asian countries and Japan diversify into more segments and engage into more related businessesas measured by the degree of vertical relatedness and complementaritythan firms in the USA. Using data for the 1990-6 period, we observe a trend towards complementary diversification in the United States and the eight East Asian countries, and a trend towards more vertical integration in Japan. The increase in relatedness for US firms is due to the divestiture of unrelated assets. In contrast, the increase in relatedness for firms in Japan and East Asia is due to expansion into related businesses. We also document the valuation effects of the diversification level, vertical relatedness and complementarity. We observe that diversification hurts the valuation of East Asian firms less than the valuation of firms in the Unites States and Japan. However, vertical diversification hurts the valuation of companies in East Asian more than the valuation of USA and Japanese firms. Complementary diversification is not detrimental to corporate value, and even enhances value in the USA, Japan, Korea, and Singapore.
corporate diversification valuation effects East Asia USA Japan