The influence of unrelated diversification and ownership structure on firm value: Evidence from Philippine conglomerates

• Main Authors: Koga, Mika M., Pratyaksa, Rorian, Sayoc, Rosanina A., Siy, Michael Dominic O.
• Format: text
• Language: English
• Published: Animo Repository 2014
• Subjects: Conglomerate corporations > Philippines; Financial institutions > Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/7104
• Institution: De La Salle University

Recent trends show that top Philippine conglomerates, with more than 91% of the Philippine Stock Exchange index (PSEi) market cap, have continued to diversify into the non-core industries (Santiago & Magpayo, 2007 Gitierrez & Rodriguez, 2013). We examine the effect of diversification on firm excess value, with considerations of ownership structure, particularly the supermajority status and family ownership while controlling for firm characteristics and industry sectors. Using the excess value methodology developed by Beger and Ofek (1995), we utilize a non-balanced panel of 167 publicly-traded from 2004 to 2013. Results suggest that there is a 43% to 56% discount from operating in another industry. However, the discount from diversifying can be offset by ownership structure characteristics, wherein having a supermajority status enjoys a 33% premium. We find that conglomerates can extract benefits from diversification strategies through the composition of their ownership structure.