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Corporate Diversificaton

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  • Cynthia A. Montgomery

Abstract

This paper documents the significant presence of diversified firms in the U.S. economy and presents three views on why firms diversify. The market power view argues that firms diversify to wield conglomerate power across markets. The agency view argues that diversification is undertaken by managers pursuing their own interests at the expense of the firm's owners. The resource view argues that firms diversify in response to excess capacity in productive factors. A review of recent empirical research finds little support for the market-power view and a substantial amount of evidence that is consistent with the agency and resource views.

Suggested Citation

  • Cynthia A. Montgomery, 1994. "Corporate Diversificaton," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 163-178, Summer.
  • Handle: RePEc:aea:jecper:v:8:y:1994:i:3:p:163-78
    Note: DOI: 10.1257/jep.8.3.163
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.8.3.163
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management

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