The Influence of Corporate Diversification Strategy on European Company's Value during the Financial Crisis 2007-2009

The current paper is aimed to identify the influence of corporate diversification strategy on European company’s value during financial crisis 2007-2009. Many previous research provides evidence that diversification destroys value. The current investigation identifies a number of reasons for existence of diversification discount for both related and unrelated diversification. First, it is necessary to take into account determinants of diversification decision while studying strategy of corporate diversification performance. Second, the relation between diversification and company’s value might be non-linear. Finally, performance of corporate diversification strategy depends on financial and economic conditions, which is important to be taken into account. The current research is carried out on the sample of diversified and focused companies from European developed countries during 2002-2014. The endogeneity of diversification decision is controlled by using two econometric techniques. Moreover, for more detailed analysis of financial crisis 2007-2009 impact the total sample is divided into three subsamples in terms of stage of economic cycle: stable period (2002-2006), crisis period (2007-2009) and recovery period (2010-2014). Results of the investigation demonstrate that after controlling the endogeneity of diversification decision the discount always drops and turns into a premium for related diversification during crisis and recovery periods. Thus, there is an increase in performance of corporate diversification strategy during the financial crisis 2007-2009.