Empirical analysis of the Degree of Diversification and Its Impact on Business Performance and Corporate Valuation by Shareholder

The proceeding globalization in conjunction with volatile economic cycle leads to an overall increase of business complexity as well as aggravation of stable business development, referring to micro- as well as macro-environmental conditions. With regard to micro-environmental conditions, German corporations face the difficulty of escalated competitive as well as cost pressure and price competition by similarly reduced single segment potential, product and corporate life cycle. This is exacerbated by adapted macro-environmental principles, being equivalent to tightened capital regulations and with it increasing relevance of shareholder and fulfilment of shareholder requirements. The diversification strategy enables growth, sustainable business advancement and balancing of economic cycle as well as competitive pressure by diversified positioning. In contrast, escalated shareholder importance put diversification into question, not least pointing to largely discussed existence of diversification discount. This poses the question of diversification`s macro-environmental conformance in terms of corporate valuation by shareholder and business performance regarding financial stability, business profitability and value creation. The effect of diversification varies by degree of diversification (DD), resulting in empirical analysis of DD`s impact on quoted perspectives. In this vein, the book will investigate a surpassing positive impact of related constrained diversification, finding justification by extensive utilization of economies of scope. In addition, analysis will confirm largely discussed diversification discount for conglomerate diversification.