Q 1 Large European conglomerates have been selling subsidiaries in recent years. Name one reason that could...

Q 1 Large European conglomerates have been selling subsidiaries in recent years. Name one reason that could explain this trend:

Q2 Why is it difficult to draw conclusions on the diversification discount? Name one reason

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Answers-

Q 1)

The reasons that the Large European conglomerates have been selling the subsidiaries in recent years is that there has been decrease in overall demand due to weak economic growth.

The other reason for the selling of subsidiaries in the recent time by large conglomerates because of mounting debt of some subsidiaries that and denting the overall balance sheet of the company as a whole and are not adding value.
The other reason being some large conglomerates are reducing the overall debt in the balance sheet by selling the non-profitable subsidiaries or the loss making subsidiaries.

Q 2)

The difficulty in drawing conclusions from diversification discount is because the it is difficult to identify the external sources of variation that results from diversification across firms.

The global diversification may be associated with valuation discounts or valuation premiums but it is difficult to draw infererences about the effects of diversification on corporate valuations.

The decision of the firms is internally determined and the failure to control firm characteristics and the performance of firm is likely to cause spurious divdersification discount but it is difficult to conclude the main cause of diversification discount and it remains elusive.

jeff jeffy answered 1 year ago

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Q 1 Large European conglomerates have been selling subsidiaries in recent years. Name one reason that could...

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