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Effects of Corporate Diversification on Productivity

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  • Antoinette Schoar

    (Sloan School of Management, MIT)

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. Copyright The American Finance Association 2002.

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Bibliographic Info

Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 57 (2002)
Issue (Month): 6 (December)
Pages: 2379-2403

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Handle: RePEc:bla:jfinan:v:57:y:2002:i:6:p:2379-2403

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