Shopping for Information? Diversification and the Network of Industries
NOVA School of Business and Economics
University of Texas at Austin
August 20, 2014
Management Science, vol. 61, no. 1, January 2015, pgs. 161-183
We propose and test a view of corporate diversification as a strategy that exploits internal information markets, by bringing together information that is scattered across the economy. First, we construct an inter-industry network using input-output data, to proxy for the economy's information structure. Second, we introduce a new measure of conglomerate informational advantage, named "excess centrality", which captures how much more central conglomerates are relative to specialized firms operating in the same industries. We find that high-excess-centrality conglomerates have greater value, and produce more and better patents. Consistent with the internal-information-markets view, we also show that excess centrality has a greater effect in industries covered by fewer analysts and in industries where soft information is important.
Number of Pages in PDF File: 57
Keywords: corporate diversification, networks, innovation, input-output tables
JEL Classification: D2, D57, L14, L25, G34, Z13
Date posted: December 19, 2010 ; Last revised: February 4, 2015
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