The Apparent Diversification Discount. We are grateful for comments and suggestions on earlier drafts to

Michela Altieri, Giovanna Nicodano, Patrick Bolton, Arnoud Boot, Bernardo Bortolotti, Gabriella Chiesa, Raffaele Corvino, Marc Deloof, Marco Da Rin, Bernard Dumas, Zsuzsanna Fluck, Arie Melnik (+6 others)
Our model highlights the impact of bankruptcy on (true and apparent) firm value. We show that the pricing of diversified firms suffers from a survivorship bias, due to their lower mortality relative to focused ones. This difference in mortality is able to turn a true diversification premium, deriving from saved bankruptcy costs, into an apparent diversification discount. Such apparent discount is larger the larger is the true premium due to coinsurance across diversified units. We show how this
more » ... s. We show how this insight contributes to explain value paradoxes in diversified companies such as multi-unit groups, multi-segment conglomerates, and parent companies. October 18th, 2016 JEL code: G32, D23, K19.