Is Corporate Diversification Beneficial in Emerging Markets?’, Financial Management, 31(2): 5-31 Kripalani,M. (2004) ‘Will a Shocking Election Upset End the Economic Boom?’ Business Week Online, [www.document] http://www.businessweekasia.com/magazine/toc/

Using a sample of over 1000 firms from seven emerging markets in 1995, we find that diversified firms trade at a discount of approximately 7 % compared to single-segment firms. Diversified firms are also less profitable than single-segment firms, but lower profitability only explains part of the discount. We find a discount only for those firms that are part of industrial groups, and for diversified firms with management ownership concentration between 10 % and 30%. The discount is most severe when management control rights substantially exceed their cash flow rights. Our results do not support internal capital market efficiency in economies with severe capital market imperfections. 1 Our paper examines the costs and benefits of corporate diversification in emerging markets. We use the Worldscope database to study seven emerging markets (Hong Kong, India, Indonesia, Malaysia, Singapore, South Korea, and Thailand) and compare the value of diversified and focused firms within each country. Given the greater level of information asymmetry and other market imperfections in these economies, corporate diversification could impact firm value in two ways. One hypothesis is that the use of internal capital markets could lead to higher values for diversified firms. Our second hypothesis is tha