I took an interest in corporate diversification while working at a private thinktank after completing my master's degree. At that time, numerous Japanese firms were experiencing lingering downturns in business performance due to the collapse of the "Bubble" economy in the early 1990s. In thinking about the reasons for this poor performance, the failure of diversification management came to my mind as one possible cause. This was because many firms appeared to suffer from worsening problems as they failed to take remedial actions such as withdrawal from unsuccessful businesses launched previously. Against this background, I joined an American business school to study management strategy.
I made an important discovery in the United States: the phenomenon known as the conglomerate discount, which was unfamiliar in Japan, was attracting attention. In addition, the analysis of this phenomenon was led by researchers in the field of finance. This led me to study management with a strong attention to finance (particularly corporate finance). I also discovered something unfortunate: since the disclosure of business-segment information, which was essential for this type of research, had only just begun in Japan, it was difficult to study Japanese conglomerates at the same level as leading-edge studies in the United States. However, there was good data on internationalization, which makes corporate organizations complex in a manner similar to that of diversification. Accordingly, in my doctoral thesis, I analyzed the relationship between the internationalization of Japanese firms and their market value.

While I was involved in such studies, sufficiently large volume of data became available to estimate the conglomerate discount. This phenomenon refers to the tendency for the value (market capitalization plus debt) of a diversified firm to be lower than that of a specialized firm in the same industry. My estimations showed that in fact there was a clear conglomerate discount on Japanese diversified firms too. However, this result was not enough for a paper that would have international impact because global research had evolved further.
One such evolution concerns interpretation. The conglomerate discount is often seen as a proof that diversification reduces firm value. However, its implication is not so clear. This is due in part to the fact that diversification is a choice by the company (endogeneity). A diversified firm might have lower value than a specialized firm for other reasons, such as a lack of growth opportunities in its existing businesses. If so, then even if diversification itself increases value, the diversified firm could be subject to a discount for those other reasons. Some studies of U.S. firms have shown that the discount disappears when this endogeneity is taken into consideration. However, even when I considered endogeneity in estimation, the discount on Japanese diversified firm persisted.
I also looked at the impact of the organization. From early on in management research, diversification was known to change the corporate organization (Chandler, 1962). If so, then the discount may stem more from the increased complexity of diversified firms’ organization than from their broader business scope. Organization is a factor that is difficult to gauge systematically. However, in Japan, it is relatively easy to measure group structure, which is one aspect of the organizational structure. Since publicly traded firms in Japan disclose information on both their groups as a whole (consolidated information) and on the parent companies individually, it is easy to identify the weight of a firm’s activities organized outside the parent company. This weight tends to be higher in a diversified firm. Accordingly, I took group structure into consideration in estimating the conglomerate discount, but here too the discount remained. It thus appeared that the discount stems from diversification itself to a considerable degree. Ushijima (2016) reports these findings.