Is there a corporate diversification discount or premium? Evidence from Chile
The purpose of this paper is to analyze the effect of the corporate ownership diversification, i.e. how the involvement in the ownership of other non-financial firms affects the value of listed firms. The authors control for the unrelated diversification when the firm has different business segments in different sectors. Design/methodology/approach - The authors analyze a sample of Chilean-listed firms between 2005 and 2009, in two stages. First, the authors compute the diversification premium or discount, defined as the part of the firms' capitalization that stems from the diversification strategy. Then, the authors regress the premium or discount against the business and ownership diversification measures and other control variables. Findings - In addition to a discount for unrelated business diversification, the authors find an ownership diversification discount when non-financial firms are shareholders of other firms. However, this discount turns into a premium when the firm gains the control of the owned firm, especially in related sectors. Originality/value - The authors pioneer the analysis of the ownership diversification in Latin American firms. The results apply not only to Chile but also to a number of Latin American countries since many of these countries have, in common with Chile, a concentrated corporate ownership structure and a weak protection of investors' rights.
The level of corporate diversification is one of the most important decisions that management makes. The diversification strategy has its benefits and costs. According to the principles of corporate finance the efficiency of diversification strategy is always assessed by its impact on shareholder value. The article discusses the main value-creating and value-destroying drivers of diversified firms.
In this chapter, we analyze the development, functioning and the effectiveness of business models innovator companies and managers use to champion the business opportunity reflected in the rising number of financially excluded people climbing the LAC middle-of-the-pyramid stratum from its bottom. These models intertwine economic and social objectives aiming primarily to improve the lives and financially include the new MoP members enabling their ¨dream purchases¨ deemed essential in the developed world, while simultaneously securing own scalability and profitability of stakeholders across the business ecosystem entailing financial institutions and consumer goods sellers. We use a series of case studies to show how these models simultaneously optimize social and financial returns through interchangeable use of stakeholder’s resources and capabilities and clear alignment of their interests rather than seeking trade-offs between the two. Hence, we demonstrate how financial institutions absorb consumer goods companies into the value chain as distributors of their (financial) products and services to middle-income segments using the company’s existing distribution channels and their reputation in terms of the MoP´s trust they possess. Oppositely, consumer goods companies expand their own offers with, for them unorthodox financial tools and services, financially formalizing and including MoP members while at the same time increasing their customer-focus flexibility and sales. Finally, we provide lessons and recommendations on how to develop inclusive businesses achieving direct developmental impacts through the provision of essential goods, services, and jobs, unlocking new forms of innovation and entrepreneurial activity critical to accelerating inclusive growth of emerging markets.
The focus of this paper is the reasons of suboptimal investment policy that consists of over- or underinvestment. We consider the definitions of risk-shifting and risk avoidance effects that lead to suboptimal investments. These problems are connected with the agency conflicts in the firm between different parties: shareholders, debt holders and managers. Since the preferences of claimholders vary from one stage of the life-cycle to another, the incentives for over- and underinvestment differ in the stages of the life-cycle. The originality and the focus of this paper are the reasons for the exposure of overinvestment and underinvestment at different life-cycle stages. The research was conducted on a sample of Russian nonfinancial companies from the period 2003-2012. This sample was divided into three life-cycle stages: growth, maturity and decline. The method of life-cycle stages identification was modified in order to use only available data and make the model more business oriented. Risk-shifting and risk avoidance, as the reasons to the problem of suboptimal investment were studied. For this purpose the estimations with one of the effects were identified. The life-cycle stages, at which the effects took place, were determined, and also the strength of risk-shifting and risk avoidance was identified with the help of the regression analysis. In addition there was considered a way to mitigate these effects. According to the results they might be eliminated by the adjustment of short-term debt level.
In this chapter, we dissect a series of case studies of MNCs who developed innovative business models overcoming geographical, infrastructural and social-cultural challenges and exploitingthe opportunity reflected in the social-commercial connectedness of the middle-income customers and the largest and most lucrative retail channel in the LAC emerging market – the traditional one. With our analysis we display how innovators incorporate previously ill-collaborating players, such as financial institutions, technology companies, (none)-governmental and (none)-profitorganizations,in their models producing benefits primarily for the MoPcustomers and retailers as crucial partners.Their models expand company´s value chains to the traditional retailers increasing their productivity gains through the provision of technology and modern retail practices, yielding a powerful impact on them and their communities. They employ and train locals with deep knowledge about the needs and aspirations of local communities, as well as access to rural, lower-income consumersout of reach of modern retailers, contributing tojob creation and MoP member´s income and improved quality of life. Innovative enterprises, thus, master multiple distribution schemes to bring an optimal range of products and services to those communities efficiently achieving distribution and overall business excellence as well as social impact.
The paper examines the structure, governance, and balance sheets of state-controlled banks in Russia, which accounted for over 55 percent of the total assets in the country's banking system in early 2012. The author offers a credible estimate of the size of the country's state banking sector by including banks that are indirectly owned by public organizations. Contrary to some predictions based on the theoretical literature on economic transition, he explains the relatively high profitability and efficiency of Russian state-controlled banks by pointing to their competitive position in such functions as acquisition and disposal of assets on behalf of the government. Also suggested in the paper is a different way of looking at market concentration in Russia (by consolidating the market shares of core state-controlled banks), which produces a picture of a more concentrated market than officially reported. Lastly, one of the author's interesting conclusions is that China provides a better benchmark than the formerly centrally planned economies of Central and Eastern Europe by which to assess the viability of state ownership of banks in Russia and to evaluate the country's banking sector.
The paper examines the principles for the supervision of financial conglomerates proposed by BCBS in the consultative document published in December 2011. Moreover, the article proposes a number of suggestions worked out by the authors within the HSE research team.