The Journal of Finance

Dissecting Conglomerate Valuations

Published: 02/19/2022   |   DOI: 10.1111/jofi.13117

OLIVER BOGUTH, RAN DUCHIN, MIKHAIL SIMUTIN

We develop a new method to estimate Tobin's Qs of conglomerate divisions without relying on standalone firms. Divisional Qs differ considerably from those of standalone firms across industries, over time, and in their sensitivity to economic shocks. The differences are explained by intraconglomerate covariance structures and access to internal capital markets that mitigate external financing frictions. Consequently, the Qs capture variation in the allocation of assets in the economy: within firms through internal capital markets and across focused and diversified firms through diversifying acquisitions. Overall, our method provides opportunities to study the economic mechanisms that explain corporate diversification.

The Best of Both Worlds: Accessing Emerging Economies via Developed Markets

Published: 06/01/2019   |   DOI: 10.1111/jofi.12817

JOON WOO BAE, REDOUANE ELKAMHI, MIKHAIL SIMUTIN

A growing body of evidence suggests that the benefits of international diversification via developed markets have declined dramatically. While emerging markets still offer diversification opportunities, their public equity indices capture only a fraction of emerging countries' economic activity. We propose a diversification approach that exploits the global connectedness of developed countries to gain exposure to emerging countries' overall economies rather than their shallow equity markets. In doing so, we demonstrate that developed markets still offer substantial diversification benefits beyond those available through equity indices. Our results suggest that relying on equity indices to assess diversification benefits understates diversification gains.

A Labor Capital Asset Pricing Model

Published: 03/18/2017   |   DOI: 10.1111/jofi.12504

LARS‐ALEXANDER KUEHN, MIKHAIL SIMUTIN, JESSIE JIAXU WANG

We show that labor search frictions are an important determinant of the cross‐section of equity returns. Empirically, we find that firms with low loadings on labor market tightness outperform firms with high loadings by 6% annually. We propose a partial equilibrium labor market model in which heterogeneous firms make dynamic employment decisions under labor search frictions. In the model, loadings on labor market tightness proxy for priced time‐variation in the efficiency of the aggregate matching technology. Firms with low loadings are more exposed to adverse matching efficiency shocks and require higher expected stock returns.