Shopping for Information? Diversification and the Network of Industries

Abstract:     
Having information about different technological and managerial practices is an important channel through which firms innovate and create value. We argue this information flows across the network of customer-supplier relationships -- which we proxy using inter-industry input-output trade flows -- providing a competitive advantage to more central firms. We test this network centrality hypothesis by focusing on conglomerates, in order to use specialized firms as a control for industry endogeneity. We find that conglomerates with higher industry-adjusted centrality exhibit greater industry-adjusted value and profitability. Consistent with our hypothesis, these conglomerates innovate at a higher rate, producing more and better patents.

Number of Pages in PDF File: 51

Keywords: innovation, networks, diversification, mergers, input-output tables

JEL Classification: D2, D57, L14, L25, G34, Z13

working papers series