Dissecting Conglomerates

Finance

Speaker:Ran Duchin, University of Washington
Date: Tuesday 24 October 2017
Time: 13:45
Location: Pearson teaching room, Building: one

Further details

We develop a new method to study internal capital allocation in conglomerates by calculating direct estimates of divisional Tobins qs without relying on standalone firms. We find that divisional qs diff er considerably from those of standalone fi rms, are less volatile, and less sensitive to macroeconomic shocks. In contrast to prior studies that rely on qs of standalone rms, we fi nd that conglomerate investment is highly sensitive to divisional qs. This sensitivity disappears if a division is spun off and runs as a standalone firm. More over, divisional qs predict announcement returns and acquisition volume of diversifying acquisitions. Overall, we provide first estimates of intra-conglomerate qs that shed new light on the systematic di ferences between conglomerates and standalone fi rms and the efficacy of internal resource allocation.