We investigate whether the diversification discount is simply a proxy
for poor corporate governance. We find that the negative value impact of
diversification is amplified by adverse governance variables such as low
CEO ownership, low board independence, and board classification, and
that approximately 25% to 30% of the diversification discount can be
attributed to suboptimal governance choices by conglomerate firms. Our
methodology includes a dynamic panel GMM estimator that accounts for the
endogeneity of the diversification decision and corporate governance,
plus an event study analysis of diversifying mergers. Even after
controlling for governance, the diversification discount remains
negative and significant