Diversification in Firm Valuation: A Multivariate Copula Approach

Erdorf, Stefan; Hartmann-Wendels, Thomas; Heinrichs, Nicolas

doi:10.2139/ssrn.1739736

Cited by 4 publications

(4 citation statements)

References 46 publications

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“…Finally, investors react positively to both efficient and inefficient transfer and we suspect that this effect is due to firm's surplus in internal capital market regardless of the efficiency of the allocation. These results still hold in the model (4), which take all types of internal market into account. The results partially support the Hypothesis 1, especially in the inefficient subsidies to constrained segments and efficient transfer segments.…”

Section: The Impact Of Internal Capital Marketmentioning

confidence: 59%

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Diversification, Internal Capital Market, and Information Advantage

Shih¹,

Wu²,

Yang³

2018

ujm

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We analyze the information advantage of insiders and institutional investors from the efficiency of internal capital market defined in Billett and Mauer [1]. The empirical evidence shows three major findings in this paper. First, the inefficient subsidies to constrained firms have significantly negative impact on the firm's long-term performance. In addition, the diversified firms with transfer segments, both efficient and inefficient transfer, have significantly positive effect on the firm's performance. Second, the insiders and institutional investors of diversified firms may use similar information regarding the internal capital market because they show the similar trading behavior with respect to efficient subsidies to both constrained and non-constrained segments. Finally, the insiders play a more important role in the firms' long-term performance. In sum, we conclude that both institutional investors and insiders have some information advantage of internal capital market. Insiders, however, have stronger impact on the diversified firms' long-term performance.

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Section: The Impact Of Internal Capital Marketmentioning

confidence: 59%

“…There is, however, a trade-off relationship in the firm's diversification. The major benefits, on the one hand, come from efficient internal capital allocation and/or debt-coinsurance effect [2][3][4]. On the other hand, the inefficient management of internal capital may also decrease the firm value [5][6][7].…”

Section: Introductionmentioning

confidence: 99%

Diversification, Internal Capital Market, and Information Advantage

Shih¹,

Wu²,

Yang³

2018

ujm

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“…Galsband (2010) finds that macroeconomic risks contained in cash flows largely account for differences in expected excess returns for consumption-based models. Theoretical approaches to explaining the market value of firms based on revenue include the discounted cash flow models (Copeland et al 1994), revenue-based multiples, value driver models (Rappaport 1986), and stochastic models (Schwartz and Moon 2000;Erdorf et al 2011). While we first focus on revenue, we further present results for earnings correlations.…”

Section: Related Literaturementioning

confidence: 99%

“…For example,Erdorf et al (2011) value multi-business firms by using state-dependent correlations of revenue in their model andGatzert et al (2008) investigate enterprise risk management in financial groups, by modeling state-varying dependence.…”

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confidence: 99%

Co-movement of revenue: structural changes in the business cycle

Erdorf

Heinrichs

2011

Financ Mark Portf Manag

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The co-movement of revenue growth across different industries changes over the business cycle. Using a large sample of quarterly firm revenues, aggregated to industry data from 1969 to 2009, we demonstrate that the correlation is the highest during a crisis. Our findings of structural changes in correlation have implications for diversification decisions in portfolio analysis and risk management. The higher correlation in crisis periods increases the downside risk and bankruptcy probability of business portfolios. We test the hypothesis that average correlations are significantly different, by applying permutation and bootstrap techniques. As robustness checks, both correlations between industries and the aggregate market and correlations between earnings confirm our findings.

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Selecting and estimating regular vine copulae and application to financial returns

DiíMann

Brechmann

Czado

et al. 2013

Computational Statistics & Data Analysis

566

551

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Regular vine distributions which constitute a flexible class of multivariate dependence models are discussed. Since multivariate copulae constructed through pair-copula decompositions were introduced to the statistical community, interest in these models has been growing steadily and they are finding successful applications in various fields. Research so far has however been concentrating on so-called canonical and D-vine copulae, which are more restrictive cases of regular vine copulae. It is shown how to evaluate the density of arbitrary regular vine specifications. This opens the vine copula methodology to the flexible modeling of complex dependencies even in larger dimensions. In this regard, a new automated model selection and estimation technique based on graph theoretical considerations is presented. This comprehensive search strategy is evaluated in a large simulation study and applied to a 16-dimensional financial data set of international equity, fixed income and commodity indices which were observed over the last decade, in particular during the recent financial crisis. The analysis provides economically well interpretable results and interesting insights into the dependence structure among these indices.

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Diversification in Firm Valuation: A Multivariate Copula Approach

Cited by 4 publications

References 46 publications

Diversification, Internal Capital Market, and Information Advantage

Diversification, Internal Capital Market, and Information Advantage

Co-movement of revenue: structural changes in the business cycle

Selecting and estimating regular vine copulae and application to financial returns

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