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Industry Choice and Product Language

Gerard Hoberg

University of Maryland - Department of Finance

Gordon M. Phillips

University of Southern California; National Bureau of Economic Research (NBER)

October 12, 2012

We analyze the words that firms use to describe their products to examine in which industries firms operate. We find strong support for the proposition that when asset complementarities across product markets are strong as measured by industry product language overlaps, firms are more likely to operate across industries. More generally, multiple-industry firms avoid industries with more distinct language boundaries, as measured using language transitivity from rival to rival. Multiple-industry firms are also less likely to operate in industries with high within-industry word similarity and high economies of scale. These findings are consistent with firms choosing organizational form based on product market characteristics and asset complementarities.

Number of Pages in PDF File: 44

Keywords: Conglomerates, Firm Organization, Industrial Organization, Product Market Competition, Conglomerate Valuation

JEL Classification: L21, L22, G31, G34

working papers series

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Date posted: June 5, 2011 ; Last revised: October 12, 2012

Suggested Citation

Hoberg, Gerard and Phillips, Gordon M., Industry Choice and Product Language (October 12, 2012). Available at SSRN: http://ssrn.com/abstract=1858007 or http://dx.doi.org/10.2139/ssrn.1858007

Contact Information

Gerard Hoberg (Contact Author)
University of Maryland - Department of Finance ( email )
Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States
HOME PAGE: http://www.rhsmith.umd.edu/finance/faculty/hoberg.aspx
Gordon M. Phillips
University of Southern California ( email )
Marshall School of Business
Los Angeles, CA 90089
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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References:  33
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