Hornstein, Nguyen ’12 Published in International Review of Financial Analysis

Abigail Hornstein, associate professor of economics, and her former thesis student, Zachary Nguyen ’12 are the co-authors of a paper titled “Is More Less? Propensity to Diversify via M&A and Market” published in the International Review of Financial Analysis, June 2014, pp. 64-88.

Mergers and acquisitions (M&A) could lead to a firm diversifying into new industries, and the impact of this may be related to the firm’s prior diversification. By using a panel of 1,030 M&A transactions from 2000-2010, Hornstein and Nguyen found that that previously diversified firms are more likely to pursue industrially diversifying M&A.

“Both previous and contemporary diversification measures are not associated with the firm’s cumulative abnormal returns (CAR) at time of announcement but have a lasting effect on various performance measures up to two years later,” Hornstein explained. “We find evidence supporting both a diversification discount and premium, which can be predicted by the sign of the CAR at time of announcement.”

Their study suggests that while diversification is necessary to explain firm value, it is not sufficient.

After graduating, Nguyen worked at Charles River Associates in Boston 2012-14 and is now a first year student at The University of California — Berkeley School of Law.