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Does vertical diversification create superior value? Evidence from the construction industry

Raudszus, M. ; Schiereck, D. ; Trillig, J. :
Does vertical diversification create superior value? Evidence from the construction industry.
In: Review of Managerial Science, 8 (3) pp. 293-325. ISSN 1863-6683
[Artikel], (2013)

Kurzbeschreibung (Abstract)

The discussion of diversification discounts is one of the most controversial in corporate finance and strategic management. We are eager to reexamine this issue from the standpoint of vertical versus lateral diversification, and horizontal growth through construction industry M&A. We build on previous evidence of positive acquirer abnormal returns for vertical M&A, and we add new insight into stock return risk. Considering the high idiosyncratic risk levels of builders, we expect to find considerable informational content in systematic risk (beta) behavior, which has been neglected to date. In fact, we find that vertical M&A experience a negative asset beta shift, lateral M&A experience an increase in systematic risk, and only horizontal M&A exhibit no risk changes. Hence, our evidence on risk and previous evidence on return-induced wealth creation through vertical M&A shows that related industrial diversification is superior to unrelated—at least in the construction industry.

Typ des Eintrags: Artikel
Erschienen: 2013
Autor(en): Raudszus, M. ; Schiereck, D. ; Trillig, J.
Titel: Does vertical diversification create superior value? Evidence from the construction industry
Sprache: Englisch
Kurzbeschreibung (Abstract):

The discussion of diversification discounts is one of the most controversial in corporate finance and strategic management. We are eager to reexamine this issue from the standpoint of vertical versus lateral diversification, and horizontal growth through construction industry M&A. We build on previous evidence of positive acquirer abnormal returns for vertical M&A, and we add new insight into stock return risk. Considering the high idiosyncratic risk levels of builders, we expect to find considerable informational content in systematic risk (beta) behavior, which has been neglected to date. In fact, we find that vertical M&A experience a negative asset beta shift, lateral M&A experience an increase in systematic risk, and only horizontal M&A exhibit no risk changes. Hence, our evidence on risk and previous evidence on return-induced wealth creation through vertical M&A shows that related industrial diversification is superior to unrelated—at least in the construction industry.

Titel der Zeitschrift, Zeitung oder Schriftenreihe: Review of Managerial Science
Band: 8
(Heft-)Nummer: 3
Verlag: Springer
Fachbereich(e)/-gebiet(e): Fachbereich Rechts- und Wirtschaftswissenschaften > Betriebswirtschaftliche Fachgebiete > Unternehmensfinanzierung
Fachbereich Rechts- und Wirtschaftswissenschaften > Betriebswirtschaftliche Fachgebiete
Fachbereich Rechts- und Wirtschaftswissenschaften
Hinterlegungsdatum: 16 Mai 2013 11:24
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