Effects of Corporate Diversification on Productivity

Posted: 19 Mar 2003

See all articles by Antoinette Schoar

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Abstract

Using plant-level observations from the Longitudinal Research Database I show that conglomerates are more productive than stand-alone firms at a given point in time. Dynamically, however, firms that diversify experience a net reduction in productivity. While the acquired plants increase productivity, incumbent plants suffer. Moreover, stock prices track firm productivity and this tracking is equally strong for diversified and stand-alone firms. Therefore, lower transparency of conglomerates is unlikely to explain the discrepancy between productivity and stock prices on average. Finally, I offer some evidence that this discrepancy may arise because conglomerates dissipate rents in the form of higher wages.

Suggested Citation

Schoar, Antoinette, Effects of Corporate Diversification on Productivity. The Journal of Finance, Vol. 57, No. 6, pp. 2379-2403, 2002. Available at SSRN: https://ssrn.com/abstract=369706

Antoinette Schoar (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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United States
617-253-3763 (Phone)
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National Bureau of Economic Research (NBER) ( email )

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