An outstanding puzzle in Finance is why conglomerates are traded at a discount relative to focused firms. While some academics say that the discount doesn't even exist, we (hopefully!) bring a new angle to this discussion.
We show that conglomerates have less dispersion of opinions than focused firms and face relatively fewer short sales constraints. These two effects partially explains why we observe a discount, being due to trading frictions.
The first version of a paper (together with Adam Reed and Ed van Wesep) is on SSRN:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2636770
Any comments will be appreciated!
1 day ago
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