Valuation-driven profit transfer among corporate segments

• 成果类型: Article
• 署名作者: You, Haifeng
• 署名单位: Hong Kong University of Science & Technology
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-013-9264-5
• 发表日期: 2014
• 页码: 805-838
• 关键词: sfas no. 131; earnings management; DIVERSIFICATION DISCOUNT; capital-markets; AGENCY COSTS; dark side; FIRMS; profitability; IMPACT; STOCK

摘要

This paper investigates whether the desire to achieve higher equity valuations induces conglomerates to manipulate their segment earnings. I extend the Stein (Q J Econ 104:655-669, 1989) model to a multi-segment setting and show that conglomerates have incentives to transfer profits from segments operating in industries with lower valuation multiples to those with higher multiples, even if the market is not fooled in equilibrium. If companies engage in such manipulation, segments with relatively high (low) valuations should report abnormally high (low) profits. The empirical tests confirm this prediction and further show that the relation is stronger for firms with more dispersed segment valuations. This paper also demonstrates that the simple sum-of-the-parts valuation with multiples tends to overestimate the enterprise values for conglomerates and that the measurement errors increase with segment valuation dispersion.