Does Geographic Dispersion Affect Firm Valuation?

Abstract

We find that the geographic dispersion of a corporation affects its firm valuation. Firms with subsidiaries located in different regions of the United States experience a valuation discount of 6.2% after controlling for the impact of both global and industrial diversifications, and the valuation discount increases as firms expand their operations to different regions nationwide. Results show that firms with weak corporate governance tend to expand geographically, and these firms experience greater value discounts compared with their counterparts with good corporate governance. Overall, our results suggest that the geographic location of corporate activities is an essential component of corporate policies and has important market valuation implications.

Keywords: Geographic Dispersion, Firm valuation, Corporate Governance

JEL Classification: G30, G34