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Reasons For Conglomeration: Empirical Analysis Of Management Responses In Chile

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  • JORGE TARZIJÁN M

    ()
    (Escuela de Administración, Pontificia Universidad Católica de Chile)

  • JOSÉ RIVERA

    ()
    (Escuela de Administración, Pontificia Universidad Católica de Chile)

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    Abstract

    This paper is intended to contribute to the understanding of the motivations behind the diversification decisions of the Chilean “economic groups”. With this objective we surveyed the largest such groups in Chile. Our results show that the most important reasons for diversification for the top management of the Chilean business groups are managerial synergies (board of directors), financial synergies, information synergies and some specific operational synergies such as economies of scope in research and development. Also, most of the respondents stated that the diversification decisions of their firms or business groups have increased the multimarket contact with other companies or groups, influencing the strategies and diversification of competitors. The relationship between the degree of diversification of a group and its stated reasons for diversification are also analyzed. Significant differences in the motivations for diversification exist, depending on the group's actual level of diversification. Specifically, variables such as multimarket contact and access to the capital market are more important in more diversified groups. We also analyze the relationship between the size of a group and its stated reasons for diversification. There appear to be no significant differences between the answers of the management of bigger and smaller conglomerates. However, there is a positive correlation between the size of the groups and their level of diversification.

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    File URL: http://eacc10.puc.cl/files/ABT/Contenidos/Vol-3-N2/3%20Tarzijan%20Rivera.pdf
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    Bibliographic Info

    Article provided by Escuela de Administracion. Pontificia Universidad Católica de Chile. in its journal ABANTE.

    Volume (Year): 3 (2000)
    Issue (Month): 2 ()
    Pages: 203-226

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    Handle: RePEc:pch:abante:v:3:y:2000:i:2:p:203-226

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    Related research

    Keywords: Conglomerates; Corporate Structures; Emerging Markets; Diversification Decisions; Chile;

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    References

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    1. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
    2. Stein, Jeremy C, 1989. "Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 655-69, November.
    3. Robert H. Gertner & David S. Scharfstein & Jeremy C. Stein, 1994. "Internal versus External Capital Markets," NBER Working Papers 4776, National Bureau of Economic Research, Inc.
    4. Shleifer, Andrei & Vishny, Robert W, 1992. " Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-66, September.
    5. Fernando Lefort & Eduardo Walker, 2000. "The Effects Of Economic And Political Shocks On Corporate Governance Systems In Chile," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 2(2), pages 183-206.
    6. Andrei Shleifer & Robert W. Vishny, 1996. "A Survey of Corporate Governance," NBER Working Papers 5554, National Bureau of Economic Research, Inc.
    7. Larry H.P. Lang & Rene M. Stulz, 1993. "Tobin's Q, Corporate Diversification and Firm Performance," NBER Working Papers 4376, National Bureau of Economic Research, Inc.
    8. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    9. Fernando Lefort & Eduardo Walker, 2000. "Ownership And Capital Structure Of Chilean Conglomerates:Facts And Hypotheses For Governance," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 3(1), pages 3-27.
    10. Comment, Robert & Jarrell, Gregg A., 1995. "Corporate focus and stock returns," Journal of Financial Economics, Elsevier, vol. 37(1), pages 67-87, January.
    11. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    12. Servaes, Henri, 1996. " The Value of Diversification during the Conglomerate Merger Wave," Journal of Finance, American Finance Association, vol. 51(4), pages 1201-25, September.
    13. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    14. Berger, Philip G. & Ofek, Eli, 1995. "Diversification's effect on firm value," Journal of Financial Economics, Elsevier, vol. 37(1), pages 39-65, January.
    15. Jensen, Michael C. & Ruback, Richard S., 1983. "The market for corporate control : The scientific evidence," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 5-50, April.
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