2015/09/03 by Venkat Kuppuswamy, Belén Villalonga
Business, Management and Accounting · Economics, Econometrics and Finance · #Corporate Finance and Governance #Insurance and Financial Risk Management #Banking stability, regulation, efficiency
paper · doi:10.1287/mnsc.2015.2165
We show that the value of corporate diversification increased during the 2007–2009 financial crisis. Diversification gave firms both financing and investment advantages. First, conglomerates became significantly more leveraged relative to comparable focused firms. Second, conglomerates’ access to internal capital markets became more valuable, not just because external capital markets became more costly but also because the efficiency of internal capital allocation increased significantly during the crisis. Our analysis provides new evidence on how and why the value of diversification varies with financial constraints and economic conditions, and it suggests that corporate diversification can serve an important insurance function for investors. This paper was accepted by Amit Seru, finance.