Does Corporate Diversification Reduce Firm Risk? Evidence from Diversifying Acquisitions

Whether corporate diversification decreases or increases the risk of the diversifying firm is an important empirical question. We investigate this issue using a sample of diversifying acquisitions and various risk measures. We find that corporate diversification tends to decrease the risk of some firms but increase the risk of many others, and on average corporate diversification does not lower firm risk. These findings call into question the notion that corporate diversification strictly reduces firm risk