Effects of global and industrial diversification on firm value and operating performance

We directly test the impact of increases in global and industrial diversification on firm value and operating performance. Our sample represents 194 US firms that acquired foreign companies during 1985-1998. Announcement period returns are significantly positive for the acquirers. Acquirer firms with fewer growth opportunities, as measured by Tobin's q, create more value than do firms with more growth opportunities. Announcement-period returns and changes in operating performance are lower for firms that increase their global, industrial, or both forms of diversification.