Corporate diviersification strategy in Mexico: A value analysis

Abstract

The current investigation presents a value effect analysis on the market value according to the levels and types of corporate diversification, in Mexican firms on a 10 years period. We perform a model with an excess value as a dependent variable through panel data analysis. We also incorporated and extended a model with variables that captured the types of diversification (related and unrelated). The estimations were conducted by using the Generalized Method of Moments. Results indicate destruction of value excess in Mexican companies with activities in multiple segments (multiple businesses), proving the hypothesis of discount discussed in the financial literature. Additionally, by incorporating the type of diversification, we observed that companies conducting activities within their core business are positively valued by the market, indicating that premium hypothesis is also confirmed in our research.