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Conglomerate Industry Choice and Product Di fferentiation

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  • Gerard Hoberg
  • Gordon M. Phillips

Abstract

We use text-based computational analysis of business descriptions from 10-Ks to examine in which industries conglomerates are most likely to operate and to understand conglomerate valuations. We find that conglomerates are more likely to operate in industry pairs that are closer together in the product space and in industry pairs that have profitable opportunities "between" them. Conglomerate firms have lower stock market valuations than matched single-segment firms when their products are easier to replicate with single-segment firms. Conglomerate firms have stock market premiums when they have higher product differentiation and produce in more profitable industries. These findings are consistent with successful conglomerate firms having higher product differentiation and lower cost entry into profitable markets when operating in strategically chosen industry pairs.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17221.

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Date of creation: Jul 2011
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Handle: RePEc:nbr:nberwo:17221

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Cited by:
  1. Xavier Boutin & Giacinta Cestone & Chiara Fumagalli & Giovanni Pica & Nicolas Serrano-Velarde, 2011. "The Deep-Pocket Effect of Internal Capital Markets," Working Papers 403, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. Giacomo Rodano & Emanuele Tarantino & Nicolas Serrano-Velarde, 2012. "Bankruptcy Law and the Cost of Banking Finance," Working Papers, Oxford University Centre for Business Taxation 1218, Oxford University Centre for Business Taxation.

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