Shopping for Information? Diversification and the Network of Industries
Management Science, vol. 61, no. 1, January 2015, pgs. 161-183
57 Pages Posted: 19 Dec 2010 Last revised: 4 Feb 2015
Date Written: August 20, 2014
We propose and test a view of corporate diversification as a strategy that exploits internal information markets, by bringing together information that is scattered across the economy. First, we construct an inter-industry network using input-output data, to proxy for the economy's information structure. Second, we introduce a new measure of conglomerate informational advantage, named "excess centrality", which captures how much more central conglomerates are relative to specialized firms operating in the same industries. We find that high-excess-centrality conglomerates have greater value, and produce more and better patents. Consistent with the internal-information-markets view, we also show that excess centrality has a greater effect in industries covered by fewer analysts and in industries where soft information is important.
Keywords: corporate diversification, networks, innovation, input-output tables
JEL Classification: D2, D57, L14, L25, G34, Z13
Suggested Citation: Suggested Citation