This paper presents a rationale for divestiture consistent with one of the frequently cited reasons by divesting firms, namely, that the firm is undervalued and splitting the firm into its component businesses will make it easier for the market to value the components accurately. When firms are...

This paper provides a model that explains the structure of mutual funds. Specifically, the paper explains why funds structure as open- or closed-end funds, and why some open-end funds charge loads. In our model fund managers generate earn excess returns that, on the margin, are increasing in...

Recent literature has been largely negative in its assessment of value effects of corporate diversification. Does value maximization nevertheless play an important role in the conglomeration process? Drawing upon value maximization theories, we identify industry conditions that make a...

Recent literature has been largely negative in its assessment of corporate diversification. Diversified firms have been regarded as destructive of firm value, prone to agency problems and divisional rent-seeking. The empirical finding that multi-division firms tend to trade at a 'discount,' or...

This paper investigates the resource allocation decisions in conglomerates when managers are motivated by career concerns. The output of a conglomerate division is determined by the unknown ability of corporate management, the capital employed in the division, and intangible resources that the...