An application of degree concentration and growth opportunities in the analysis of Philippine conglomerates using asset-based Herfindahl index and industry media market-to-book ratio

• Main Authors: Alcaraz, Loren Andrea, Dela Cruz, Vica Patricia L., Dongon, Kimberly M., Simeon, Mary Katherine A.
• Format: text
• Language: English
• Published: Animo Repository 2017
• Subjects: Conglomerate corporations > Philippines
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/7103
• Institution: De La Salle University

There are numerous investment options available to corporations, but this study concentrated on conglomerate diversification-- or simply, conglomeration. Conglomeration was a common business decision during the 1980's, but its popularity declined when various people began to scrutinize conglomerates. Ironically, conglomerates continue to prevail in the Philippines. For this reason, the study intends to explain this local phenomenon by determining the effect of two industry conditions, namely, degree concentration and growth opportunities, to the conglomeration of Philippine holding firms. Although the study was only concerned with two industry conditions, it has three independent variables, for it had to account for both subsidiaries and single-segment firms in the computation of degree concentration. Due to this, the study utilized two versions of industry Herfindahl index, one for subsidiaries (InHerfSub) and another for single-segment firms (IndHefSin). For the last variable, industry median market-to-book (IndMB) was used to measure growth opportunities. On the other hand, the computation of the dependent variable, which is the degree of conglomeration (cong), is essentially a proportion of an industry by which a conglomerate is present. The results of the random effects panel data model indicate that degree concentration of subsidiaries is negatively insignificant to degree of conglomeration while degree concentration of single-segment firms is positively significant to degree of conglomeration. This suggests that a competitive environment does not favor conglomerates. In addition, growth opportunities of single-segment firms is negatively significant to degree of conglomeration, thus indicating that high growth industries are not attractive to conglomerates.