IDEAS home Printed from
   My bibliography  Save this paper

Strategy and Structure: Explaning the Diversification Discount



In this paper we provide an explanation based on the conflict of interes between top management, middle management and shareholders of why firms adopt different diversification strategies and how they structure themselves to manage those diversification strategies. It es shown that when objectives are fully aligued, a descentralization organizational structure coupled with a related diversification strategy is adopted. Whereas when objectives are not fully aligned, firms send to be more centralized and more focused than when incentives are aligned. We use these results to suggest an explanation for the existence of diversification discount; i.e., the empirical observation that conglomerate firms trade at a discount relative to a portfolio of stand-alone firms in the same business segments that do not depend on inefficient internal capital allocations.

Suggested Citation

  • Felipe Balmaceda, "undated". "Strategy and Structure: Explaning the Diversification Discount," ILADES-Georgetown University Working Papers inv135, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
  • Handle: RePEc:ila:ilades:inv135

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Loewenstein, Mark A & Spletzer, James R, 1998. "Dividing the Costs and Returns to General Training," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 142-171, January.
    2. Daron Acemoglu & Jorn-Steffen Pischke, 1999. "The Structure of Wages and Investment in General Training," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 539-572, June.
    3. David H. Autor, 2001. "Why Do Temporary Help Firms Provide Free General Skills Training?," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1409-1448.
    4. Acemoglu, Daron & Pischke, Jorn-Steffen, 2000. "Certification of training and training outcomes," European Economic Review, Elsevier, vol. 44(4-6), pages 917-927, May.
    5. Felipe Balmaceda, "undated". "Firm-Sponsored General Training in a Frictionless Labor Market," ILADES-Georgetown University Working Papers inv134, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
    6. Macleod, W.B. & Malcomson, J.M., 1991. "Investments, Hold Up and the Reform of Market Contracts," Cahiers de recherche 9114, Universite de Montreal, Departement de sciences economiques.
    7. Franz, Wolfgang & Soskice, David W., 1994. "The German apprenticeship system," Discussion Papers 11, University of Konstanz, Center for International Labor Economics (CILE).
    8. Waldman, Michael, 1990. "Up-or-Out Contracts: A Signaling Perspective," Journal of Labor Economics, University of Chicago Press, vol. 8(2), pages 230-250, April.
    9. John Bishop, 1994. "The Impact of Previous Training on Productivity and Wages," NBER Chapters,in: Training and the Private Sector: International Comparisons, pages 161-200 National Bureau of Economic Research, Inc.
    10. Chang, Chun & Wang, Yijiang, 1996. "Human Capital Investment under Asymmetric Information: The Pigovian Conjecture Revisited," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 505-519, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ila:ilades:inv135. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marcela Perticara). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.