Effect of operating segments to firm value of diversified listed companies in the Philippines

Abstract

A growing number of studies produced different result on whether diversification can create or destroy value. The objective of this study is to determine if the operating segments can predict the firm value of the publicly listed diversified companies. Tobin’s Q was used as a proxy of firm value. This study used regression analysis to evaluate what predicts the Tobin’s Q. Using 85 diversified listed companies the study shows that majority of the diversified firms have Tobin’s Q lesser than one. Diversified firms without real estate and banking in their segments have better firm value than those who have. The value that was created by diversification will depend on what type of operating segment the company engaged and not on the number of segments they operate.

Keywords: Diversified Firm, Firm Value, Operating Segments, Philippines, Tobin’s