The effects of corporate diversification on firm value, risk and performance: Turkey application

Corporate diversification is a strategic decision which boosts firm value by reducing total firm risk and improving firm performance. Theories of corporate diversification imply that there are both benefits and costs of corporate diversification. The effect of corporate diversification on firm value is defined as the diversification discount or premium. This study aims to explore the impact of corporate diversification on firm value, risk and performance by examining the companies operated in Turkey. Data of analysis is obtained from diversified and specialized firms numbered 203 in ISE. Regression models are based on panel data and cross-sectional data set covering the period January 2005 to December 2010.Analysis results indicates that there is a diversification premium in Turkish diversified firms. The significantly positive coefficient estimates on the diversification indexs indicate that, all else being equal, multi segment firms gain more value as they become more diversified. Besides, it is found out that the diversification reduces levels of total firm risk and has a positive impact on firm performance.