This dissertation work provides a kaleidoscope of alternative empirical estimation techniques while illuminating and challenging coentional approaches and established findings in the Corporate Finance literature. In particular, the observed „conglomerate discount“ and the effect of diversication and concentrated ownership on firm value are revisited in the course of my cumulated doctoral thesis. In doing so, the main emphasis lies on the inference of causation in the presence of endogeneity concerns, namely by considering potential distortions caused by unobserved heterogeneity, reverse causality or non-random self-selection.
This paper aims to shed light on the alleged contradiction between the observed conglomerate discount and a value creating effect of diversification itself. For this reason, we apply endogenous switching regressions on a sample of 51,878 US-firm years recorded over the years 1992-2012 in order to obtain counterfactual firm values of random average firms, firms decided to diversify and firms that refrained from this choice. For all of them, we find a beneficial effect of diversification. Disembarking from this outcome, we are able to answer why eventually only firms with negative selection quality choose to diversify._x000D_
The majority of studies on the value impact of ownership concentration consider firm heterogeneity as a potential source of endogeneity. This paper suggests control concentration to be additionally correlated with unobserved firm-owner match characteristics that affect firm valuation. Using a sample of CDAX firms from 2000-2009, we find favorable – value enhancing – firm-owner matches to be more likely to emerge at high ownership concentration and with long tenure of the controlling owner. This finding supports the hypothesis of patient and committed large blockholders. We conclude that neglecting match heterogeneity masks the positive average effect of ownership concentration in Germany.
Under the German Tax Reduction Act of 2000, capital gains taxation was completely repealed in order to encourage corporate iestors to sell their unproductive equity stakes and to create a more dispersed ownership structure in Germany. Contrary to the key intentions of the policy makers, we find evidence for a positive ownership concentration effect of the tax reform. Exploiting the exogenous variation in ownership concentration generated by the tax reform, we also find that the unintended development in equity ownership concentration exerted a positive impact on firm value. According to our theoretical model, we attribute this value creating effect to a favorable reshuffling of agency costs.
We promote the Oaxaca-Blinder decomposition as a new empirical approach to corporate finance-related research. Originated in labor economics, its primary field ofapplication is the examination of gender and race-related wage gaps. Allowing for an in-depth analysis of factors driving valuation differences between two distinctive groups, the method likewise provides an effective tool for corporate finance topics. We demonstrate its usefulness on the basis of an old yet still up-to-date problem, namelythe value discount associated with corporate diversification. In particular, we aim to disentangle how the different agency conflicts - the one between the corporate manager and shareholders and the other between majority and minority shareholders - work on the discount. Using a sample of CDAX firms from 2000 to 2009, we find the latter conflict to be the driving agency-related cost.