GEOPOLITICS, SYNERGIES, AND THE CORPORATE DIVERSIFICATION DISCOUNT

: Evidence from diversified firms with defense portfolios

Abstract

This dissertation examines how geopolitical risks (GPRs) influence the valuation of multidivisional U.S.-listed corporations operating in the defense sector. It focuses on the diversification discount - the tendency for diversified firms to be valued lower than their more focused counterparts - and how this discount is a!ected by the interplay between rising GPRs and defense-sector exposure. The central proposition is that defense-oriented corporations are particularly vulnerable to valuation discounts amid heightened GPRs, driven by investor concerns that such firms are more likely to face sanctions, trade restrictions, and intensified political and public scrutiny. The study further argues that rising geopolitical risks are not transitory but structural, driven by a fundamental shift from a relatively stable unipolar world to an increasingly volatile multipolar global order—and thus should be expected to persist. Two core hypotheses are tested: (1) defense-a”liated multidivisional corporations experience a larger diversification discount under high GPRs; and (2) heightened geopolitical risk is associated with a decline in M&A activity, as firms become more reluctant to engage in large-scale consolidation under conditions of uncertainty. Empirical results confirm that geopolitical volatility exacerbates the diversification discount for defense-sector firms and merger and acquisition activity. The key takeaway is that, unlike in the unipolar era (from the early 1990s to approximately the 2010s) when firms could remain commercially neutral and access global markets freely, companies are now increasingly forced to choose sides and align with a single sphere of influence, as failing to do so can incur substantial financial costs.

Date of Award	8 Oct 2025
Original language	English
Awarding Institution	China Europe International Business School
Supervisor	Viktar Fedaseyeu (Supervisor) & Wei Guo (Supervisor)