Inefficient Labor of Inefficient Capital? Corporate Diversification and Productivity Around the World
30 Pages Posted: 15 Sep 2009
Date Written: September 15, 2009
I study the relation between corporate diversification and labor productivity in a sample of over 600,000 firms from 89 countries. Across the entire sample, greater diversification is associated with significantly lower labor productivity. Contrary to theories emphasizing the inefficient use of labor in diversified firms, the negative relation between diversification and labor productivity is not stronger in countries with more-burdensome employment regulation. On the other hand, consistent with theories emphasizing the inefficient use of capital in diversified firms, the negative relation between diversification and productivity is significantly stronger in countries with better financial development.
Keywords: Corporate Diversification, Productivity, Financial Development, Employment Regulation
JEL Classification: G35, G34
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