Industrial De-Diversification and its Consequences for Productivity

Jerome Levy Economics Institute Working Paper No. 35

42 Pages Posted: 15 Mar 2000

See all articles by Frank R. Lichtenberg

Frank R. Lichtenberg

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Multiple version iconThere are 2 versions of this paper

Date Written: January 1990

Abstract

Due in large part to intense takeover activity during the 1980s, the extent of American firms' industrial diversification declined significantly during the second half of the decade. The mean number of industries in which firms operated declined 14 percent, and the fraction of single-industry firms increased 54 percent. Firms that were "born" during the period were much less diversified than those that "died", and "continuing" firms reduced the number of industries in which they operated. Using plant-level Census Bureau data, we show that productivity is inversely related to the degree of diversification: holding constant the number of the parent firm's plants, the greater the number of industries in which the parent operates, the lower the productivity of its plants. Hence de-diversification is one of the means by which recent takeovers have contributed to U.S. productivity growth. We also find that the effectiveness of regulations governing disclosure by companies of financial information for their industry segments was low when they were introduced in the 1970s and has been declining ever since.

JEL Classification: L11, O47

Suggested Citation

Lichtenberg, Frank R., Industrial De-Diversification and its Consequences for Productivity (January 1990). Jerome Levy Economics Institute Working Paper No. 35, Available at SSRN: https://ssrn.com/abstract=181153 or http://dx.doi.org/10.2139/ssrn.181153

Frank R. Lichtenberg (Contact Author)

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