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Industrial De-Diversification and its Consequences for Productivity

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Author Info
Frank R. Lichtenberg

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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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3231.

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Date of creation: Jan 1990
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Publication status: published as Journal of Economic Behavior and Organization, December 1992, forthcoming.
Handle: RePEc:nbr:nberwo:3231

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Wernerfelt, Birger & Montgomery, Cynthia A, 1988. "Tobin's q and the Importance of Focus in Firm Performance," American Economic Review, American Economic Association, vol. 78(1), pages 246-50, March. [Downloadable!] (restricted)
  2. Lichtenberg, Frank R, 1988. "Estimation of the Internal Adjustment Costs Model Using Longitudinal Establishment Data," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 421-30, August. [Downloadable!] (restricted)
  3. Randall Morck & Andrei Shleifer & Robert W. Vishny, 1989. "Do Managerial Objectives Drive Bad Acquisitions?," NBER Working Papers 3000, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Frank R. Lichtenberg & Donald Siegel, 1989. "Productivity and Changes in Ownership of Manufacturing Plants," NBER Reprints 1208, National Bureau of Economic Research, Inc.
    Other versions:
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Nicolaj Siggelkow, 1998. "Why Focus? A Study of Intra-Industry Focus Effects," Center for Financial Institutions Working Papers 99-13, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  2. Magda Bianco, 1997. "Diversification and Synergies: Effects on Profitability," STICERD - Economics of Industry Papers 17, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
  3. Jandik, Tomas & Makjija, Anil K., 2004. "Can Diversification Create Value? Evidence from the Electric Utility Industry," Working Paper Series 2005-7, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
  4. Gomes, Joao F & Livdan, Dmitry, 2002. "The Performance of Optimally Diversified Firms: Reconciling Theory and Evidence," CEPR Discussion Papers 3546, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Donald S. Siegel & Kenneth L. Simons & Tomas Lindstrom, 2005. "Ownership Change, Productivity, and Human Capital: New Evidence from Matched Employer-Employee Data in Swedish Manufacturing," Rensselaer Working Papers in Economics 0502, Rensselaer Polytechnic Institute, Department of Economics. [Downloadable!]
  6. Leo Sleuwaegen & Enrico Pennings, 2002. "The reorganization decisions of troubled firms: exit, downscale or relocate," Vlerick Leuven Gent Management School Working Paper Series 2002-21, Vlerick Leuven Gent Management School. [Downloadable!]
  7. David Neumark & Steven A. Sharpe, 1992. "Hostile Takeovers and Expropriation of Extramarginal Wages: A Test," NBER Working Papers 4101, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. R. Glenn Hubbard & Darius Palia, 1998. "A Re-Examination of the Conglomerate Merger Wave in the 1960s: An Internal Capital Markets View," NBER Working Papers 6539, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Peter G. Klein, 1997. "Were the Acquisitive Conglomerates Inefficient?," Industrial Organization 9711001, EconWPA, revised 04 Feb 2002. [Downloadable!]
    Other versions:
  10. Davide Vannoni, 2004. "Causes and effects of multimarket activity from theory to empirical analysis," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 25(3), pages 163-174. [Downloadable!]
  11. 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. [Downloadable!] (restricted)
    Other versions:
  12. Baldwin, John R. & Beckstead, Desmond & Caves, Richard, 2002. "Changements observés au niveau de la diversification des entreprises du secteur canadien de la fabrication (de 1973 à 1997)," Direction des études analytiques : documents de recherche 2002179f, Statistics Canada, Direction des études analytiques. [Downloadable!]
  13. Belen Villalonga, 2001. "Diversification Discount or Premium? New Evidence from BITS Establishment-Level Data," Working Papers 01-13, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  14. Belen Villalonga, 2000. "Does Diversification Cause the "Diversification Discount"?," University of California at Los Angeles, Anderson Graduate School of Management 1079, Anderson Graduate School of Management, UCLA. [Downloadable!]
  15. Ekaterina Emm & Jayant Kale, 2006. "Efficiency Implications of Corporate Diversification: Evidence from Micro Data," Working Papers 06-26, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  16. Gomes, Joao F & Livdan, Dmitry, 2002. "Optimal Diversification," CEPR Discussion Papers 3461, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  17. Miguel Hidalgo, Alberto de & Ríos Rodríguez, Diana M., 2007. "Estrategia de Diversificación y Oportunidades de crecimiento: evidencia para el mercado español," Documentos de Trabajo "Nuevas Tendencias en Dirección de Empresas". Working Papers "New Trends on Business Administration". 2007-02, Interuniversitary Doctorate Program "New Trends on Business Administration", Universities of Valladolid, Burgos and Salamanca (Spain). Programa de Doctorado Interuniversitario "Nuevas Tendencias en Di. [Downloadable!]
  18. Baldwin, John R. & Beckstead, Desmond & Caves, Richard, 2002. "Changes in the Diversification of Canadian Manufacturing Firms and Plants (1973-1997): A Move to Specialization," Analytical Studies Branch Research Paper Series 2002179e, Statistics Canada, Analytical Studies Branch. [Downloadable!]
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