Industry Choice and Product Language
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, G34working papers series
Date posted: June 5, 2011 ; Last revised: October 12, 2012
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