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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.

Suggested Citation

  • Antoinette Schoar, 2002. "Effects of Corporate Diversification on Productivity," Journal of Finance, American Finance Association, vol. 57(6), pages 2379-2403, December.
  • Handle: RePEc:bla:jfinan:v:57:y:2002:i:6:p:2379-2403
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