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

Fernando Anjos

NOVA School of Business and Economics

Cesare Fracassi

University of Texas at Austin

Date Written: August 20, 2014

Abstract

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

Anjos, Fernando and Fracassi, Cesare, Shopping for Information? Diversification and the Network of Industries (August 20, 2014). Management Science, vol. 61, no. 1, January 2015, pgs. 161-183. Available at SSRN: https://ssrn.com/abstract=1728525 or http://dx.doi.org/10.2139/ssrn.1728525

Fernando Anjos

NOVA School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

HOME PAGE: http://sites.google.com/site/fernandoanjossite/

Cesare Fracassi (Contact Author)

University of Texas at Austin ( email )

Red McCombs School of Business
1 University Station B660
Austin, TX 78712
United States

Paper statistics

Downloads
540
Rank
40,067
Abstract Views
2,347