International evidence on the value of corporate diversification

The valuation effect of diversification is examined for large samples of fi rms in Germany, Japan, and the United Kingdom for 1992 and 1994. We find no significant diversification discount in Germany, but a significant diversi fication discount of 10 percent in Japan and 15 percent in the U.K. Concent rated ownership in the hands of insiders enhances the valuation effect of d iversification in Germany, but not in Japan or the U.K. For Japan, only fir ms with strong links to an industrial group have a diversification discount . These findings suggest that international differences in corporate govern ance affect the impact of diversification on shareholder wealth.