Abstract: The widely used measure of diversification value developed by Berger and Ofek (1995) consistently matches large and old diversified firms with small and young focused firms. Since valuation multiples decline with sales and age this approach manufactures a discount. We develop a new measure based on sales and age matching and show that it leads to different and more intuitive conclusions than the traditional measure. Using daily return covariances, we show that the imputed portfolio of focused sales- and age-matched firms generating our measure is twice as related to the diversified firm as the imputed portfolio in Berger and Ofek (1995) and when return-weighted there is no value difference between focused and diversified firms. We generate excess values using the traditional methodology but with industry classifications from Fama and French (1997) and Hoberg and Phillips (2016) as well as randomized and permuted SIC codes and show that these different classifications produce nearly identical discounts indicating that segment-level industry is not a powerful driver of valuation multiples. We also investigate whether endogeneity removes the traditional discount and find that it does not. The diversification discount is about construction and not selection, and for most firms it is an artifact of the methods used to create it.

Caption photos easily. On the left, a road goes through a tunnel. Middle, leaves artistically fall in a hipster photoshoot. Right, in another hipster photoshoot, a lumberjack grasps a handful of pine needles.
This image can also have a caption. It's like magic.

You can also put regular text between your rows of images. Say you wanted to write a little bit about your project before you posted the rest of the images. You describe how you toiled, sweated, bled for your project, and then…. you reveal it’s glory in the next row of images.

You can also have artistically styled 2/3 + 1/3 images, like these.




The code is simple. Just add a col class to your image, and another class specifying the width: one, two, or three columns wide. Here’s the code for the last row of images above:

<div class="img_row">
  <img class="col two" src="/img/6.jpg"/>
  <img class="col one" src="/img/11.jpg"/>
</div>