Abstract

http://ssrn.com/abstract=1921073
 
 

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Technological Specialization and Corporate Diversification


Fernando Anjos


University of Texas at Austin

Cesare Fracassi


University of Texas at Austin

April 21, 2014


Abstract:     
We document a trend towards fewer and more-focused conglomerates, and develop a model that explains these patterns based on increasing technological specialization. In the model, diversification adds value by allowing efficient within-firm resource reallocation. However, synergies decrease with technological specialization, leading to fewer diversified firms over time. Also, the optimal level of technological diversity across conglomerate divisions decreases with technological specialization, leading to more-focused conglomerates. The calibrated model matches the evolution of conglomerate pervasiveness and focus, and other empirical magnitudes: growing output, level and trend of the diversification discount, frequency and returns of diversifying mergers, and frequency of refocusing activity.

Number of Pages in PDF File: 56

Keywords: corporate diversification, mergers, input-output tables, specialization

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

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Date posted: September 3, 2011 ; Last revised: August 18, 2014

Suggested Citation

Anjos, Fernando and Fracassi, Cesare, Technological Specialization and Corporate Diversification (April 21, 2014). Available at SSRN: http://ssrn.com/abstract=1921073 or http://dx.doi.org/10.2139/ssrn.1921073

Contact Information

Fernando Anjos (Contact Author)
University of Texas at Austin ( email )
Austin, TX 78712
United States
5122326825 (Phone)
HOME PAGE: http://sites.google.com/site/fernandoanjossite/home
Cesare Fracassi
University of Texas at Austin ( email )
Red McCombs School of Business
1 University Station B660
Austin, TX 78712
United States
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