Impact Of Corporate Diversification On Stock Price Synchronicity: A Moderating Role Of Group Affiliation Firms
Author: Abdul Subhan

This study contributes to the literature for Pakistan and also other emerging markets in terms of Stock price synchronicity, the impact, and importance of corporate diversification on the informational efficiency of the financial market, and lastly the role of Business/Industrial group affiliation on the Diversification-Synchronicity relation. Data from the Pakistani stock exchange was analyzed for 103 companies spanning the period from 2003 to 2019. Weekly stock prices were analyzed against the Diversification (entropy) measure; this also included a segmented analysis which tested the related and unrelated segments of diversification. Movements in the prices of undiversified firms were more synchronized with the market as compared to diversified firms. Foreign and local investors can use this information while allocating funds resulting in improvement of the overall quality of decisions. Informed investment decisions not only improve the returns for investors but also pave way for a better information environment. This study also supports and gives evidence on the information landscape of Pakistan in existing literature. Generalized method of moments was used for estimation in this study and it was found that diversification effectively decreases the synchronicity for Pakistani firms (lower synchronicity is linked with markets that are more efficient and also with higher firm-specific information content. The estimations were again tested with related and unrelated segmented diversification variables and they also returned the same results but with related diversification effecting Stock price synchronicity more than unrelated diversification. Group affiliations proved to only deteriorate the Diversification-Synchronicity relationship further. It also provides evidence for the debate that over diversification erodes firm value, even in informational asymmetric Stock markets like that of Pakistan. Supervisor:- Dr. Ahmad Fraz

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Supervisor: Ahmed Fraz

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