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Effects of Corporate Diversification on Productivity

Effects of Corporate Diversification on Productivity Using plant‐level observations from the Longitudinal Research Database I show that conglomerates are more productive than stand‐alone firms at a given point in time. Dynamically, however, firms that diversify experience a net reduction in productivity. While the acquired plants increase productivity, incumbent plants suffer. Moreover, stock prices track firm productivity and this tracking is equally strong for diversified and stand‐alone firms. Therefore, lower transparency of conglomerates is unlikely to explain the discrepancy between productivity and stock prices on average. Finally, I offer some evidence that this discrepancy may arise because conglomerates dissipate rents in the form of higher wages. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Effects of Corporate Diversification on Productivity

The Journal of Finance , Volume 57 (6) – Dec 1, 2002

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References (32)

Publisher
Wiley
Copyright
© American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/1540-6261.00500
Publisher site
See Article on Publisher Site

Abstract

Using plant‐level observations from the Longitudinal Research Database I show that conglomerates are more productive than stand‐alone firms at a given point in time. Dynamically, however, firms that diversify experience a net reduction in productivity. While the acquired plants increase productivity, incumbent plants suffer. Moreover, stock prices track firm productivity and this tracking is equally strong for diversified and stand‐alone firms. Therefore, lower transparency of conglomerates is unlikely to explain the discrepancy between productivity and stock prices on average. Finally, I offer some evidence that this discrepancy may arise because conglomerates dissipate rents in the form of higher wages.

Journal

The Journal of FinanceWiley

Published: Dec 1, 2002

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