FIN-01-010

Corporate Diversification and Performance: Evidence from Swedish Conglomerate and Non-Conglomerate Acquisitions

October 3, 2001

John A. Doukas, Martin Holmén and Nickolaos G. Travlos

ABSTRACT

We study the short- and long-term valuation effects of Swedish takeovers. Using a sample of 93 bidding firms that acquired 101 targets between 1980 and 1995, we find that diversifying acquisitions lead to a negative market reaction and deterioration of the operating performance of the bidder. Announcement and performance gains in each of the three years following the acquisition occur only when bidders expand their core than their peripheral lines of business. Our findings suggest that focused acquisitions lead to greater synergies and operating efficiencies than diversifying acquisitions. Intra-group acquisitions, however, show that bidders do not realize significant gains whether they adopt diversifying or focusing investment strategies by purchasing firms controlled by the Wallenbergs and SHB conglomerate groups. Intra-group targets realize significant gains regardless bidder’s investment strategy.

Subject: Conglomerate and Non-conglomerate Acquisitions; Corporate Focus; Diversification

Classification: G34

John A. Doukas
Institution: Leonard N. Stern School of Business, New York University
Telephone: 212-998-0432
Fax: 212-995-4233
Email: jdoukas@stern.nyu.edu
Home Page: http://www.stern.nyu.edu/~jdoukas/

Martin Holmén
Institution: Stockholm University, Stockholm, Sweden
Email: mah@fek.su.se

Nickolaos G. Travlos
Institution: Athens Laboratory of Business Administration, Greece
Email: ntravlos@alba.edu.gr

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