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Industrial Diversification and Brand Value of European Companies

Student: Podoprigorin Pavel

Supervisor: Viсtoria A. Cherkasova

Faculty: Faculty of Economic Sciences

Educational Programme: Strategic Corporate Finance (Master)

Year of Graduation: 2019

At the present new large diversified enterprises are being created. Hence, scientific researches are continuously being made to find out whether they are more efficient or not. Although correlation of industrial diversification with financial performance is a well-studied issue, researches for new aspects of this problem such as interconnections with brand value are in high demand. Research provides a thorough analysis of recent scientific literature. Industrial diversification has been studied in a great variety of researches based on different theories and approaches. Herfindahl-Hirschman Index is used for the main part of the research while Jacquemin-Berry Entropy to check the robustness of results. It was found that there is a strong link between goodwill and brand value. Concept of goodwill represents a possibility of a company to have excess earnings due to loyalty of its customers, going concern value, expectation of future growth and economic benefits, so can be attributed to brand value. The research is divided into three stages each of them has its own regression model to check the hypotheses. Final sample contains 800 firm-year observations, which are represented by 100 public firms from Germany, Italy and France, while timeframe ranges from 2011 till 2018 year. It was found that diversification positively correlates with goodwill of European companies, while IT firms should use only related diversification strategies. There were no statistically significant results to state that industrial diversification positively correlates with cash flow standard deviation ratio and thus increases brand value. However, it was empirically proven that industrial diversification reduces a need to maintain a high liquidity ratio and hence increases brand value.

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