Corporate Diversification and Firm Value During Crisis Periods: Evidence from European Listed Firms During the COVID-19 Crisis

This thesis examines the relationship between corporate diversification and firm value, focusing on whether the conglomerate discount changed during the COVID-19 crisis. Previous literature has often found that diversified firms trade at lower valuations than focused firms, but the interpretation of this discount remains debated. It may reflect inefficient internal capital markets, agency problems, and organizational complexity, but it may also depend on firm characteristics, measurement choices, and the institutional context. The thesis focuses on European listed firms, a relevant setting because firms operate in heterogeneous institutional and industrial environments across countries. The COVID-19 crisis provides a useful context for the analysis, as it represented a sudden external shock characterized by high uncertainty and uneven effects across sectors and countries. The empirical analysis tests whether diversified firms are valued differently from focused firms and whether this valuation gap narrowed during the pandemic. Firm value is measured mainly through Tobin’s Q, while diversification is identified through the presence of multiple business activities. The analysis also includes firm-level controls such as size, leverage, and profitability. By studying the European context during the COVID-19 crisis, the thesis contributes to the debate on whether diversification is mainly associated with lower firm value or whether it can become more valuable during periods of economic stress.