The Role of Headquarters on Product Diversification (Japanese)

Product diversification is an important issue in management science and industrial organization. Many studies have argued that product diversification is related to the scale of headquarters, and productivity studies find that multi-product firms have higher productivity than single-product firms. Our study examines the role of headquarters in product diversification using the Business Survey of Japanese Business Structure and Activities (BSJBSA). We focus not only on the scale of headquarters but also on their efficiency, which varies across industries. In manufacturing sectors such as electric appliance equipment, electric measuring instruments, and computer industries, many firms have highly efficient headquarters. Our empirical results show that headquarters efficiency contributes to product diversification in firms with higher TFP. Although increasing headquarters scale induces product diversification, its effect becomes negative once it exceeds a certain level. Our findings imply that government support for product innovation or diversification should consider not only the growth of new products but also the capacity and efficiency of headquarters.