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| Author: | Joaquin, D.C. Khanna, N. |
| Title: | Cannibalization risk and limited liability: implications for firm valuation and capital budgeting |
| Journal: | Quarterly Review of Economics and Finance
2000 : SUMMER, VOL. 40:2, p. 247-262 |
| Index terms: | Companies Valuation Capital budgeting Risk |
| Language: | eng |
| Abstract: | When 2 firms combine, the negative cash flows of some projects can cannibalize the positive cash flows of other projects. This may at least partly explain observations that there is value loss from diversification, value gain from splitting up an existing firm, and that the value loss is higher in the case of diversification into unrelated industries. This may also explain why the value and riskiness of an identical project can be different for firms with different assets in place and why the value of a project as stand-alone may be irrelevant for a firm's investment decisions. |
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