Abstract

http://ssrn.com/abstract=1921073
 
 

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Technological Specialization and the Decline of Diversified Firms


Fernando Anjos


University of Texas at Austin

Cesare Fracassi


University of Texas at Austin

November 30, 2014


Abstract:     
We document a strong decline in corporate-diversifi cation activity since the late 1970's, and we develop a dynamic model that explains this pattern, both qualitatively and quantitatively. The key feature of the model is that synergies endogenously decline with technological specialization, leading to fewer diversifi ed fi rms in equilibrium. The model further predicts that the optimal level of cross-division relatedness increases with technological specialization, which is consistent with the relatedness trend observed in data. Finally, the calibrated model also matches other empirical magnitudes well: output growth rate, Tobin's Q, diversifi cation discount, frequency and returns of diversifying mergers, and frequency of refocusing activity.

Number of Pages in PDF File: 61

Keywords: corporate diversification, specialization, mergers, matching

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

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Date posted: September 3, 2011 ; Last revised: January 15, 2015

Suggested Citation

Anjos, Fernando and Fracassi, Cesare, Technological Specialization and the Decline of Diversified Firms (November 30, 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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