Corporate Diversification and Investment Characteristics
Research Paper
November 14, 2024
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Corporate diversification reached its peak with the prominence of conglomerates in the 1970s, but has declined markedly since, particularly in the U.S., where firms largely specialize in single sub-industries. In Japan and East Asia, however, firms still often maintain a significant share of multi-industry companies.
We mapped the operations — as measured by their revenues, assets and operating income — of companies in the MSCI ACWI Investable Market Index to sub-industries, using MSCI's Business Segment Data to differentiate between single- and multi-industry firms.
Our findings indicate that multi-industry firms have consistently achieved higher asset-turnover ratios but had lower operating margins in most sectors. Our analysis helps underscore corporate diversification as a key dimension for investors to consider in their decision-making process.
Multi-industry firms had higher asset turnover and lower operating margins than single-industry firms
Average asset turnover and operating margin calculated within each group over the five-year period between June 2019 and June 2024. Over this period, companies with available operating income and assets data accounted for an average of 79% and 53% of the MSCI ACWI IMI by market-capitalization weight, respectively. Asset-turnover ratios were calculated based on companies with both sales and assets data, while operating margins were based on those with both sales and operating income data. Green denotes higher values and red denotes lower values.
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