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Patterns of Corporate Diversification in Canada: An Empirical Analysis

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Listed:
  • Baldwin, John R.
  • Beckstead, Desmond
  • Gellatly, Guy
  • Peters, Alice
  • Yates, Janice

Abstract

Using a comprehensive micro-database of Canadian firms in conjunction with industry-level data on commodity flows, we develop a profile of corporate diversification within the Canadian economy. Our analysis has two major objectives. First, we decompose corporate diversification into horizontal and vertical components based on the degree to which industries are linked by inter-industry trade flows. Horizontal and vertical decompositions serve as useful proxies for the strategic factors that underlie diversification strategies. Our second objective is to ascertain whether diversification patterns are closely associated with certain industry characteristics. Here we consider industry-level factors that are generally posited to affect the level of diversification (e.g., growth, concentration, knowledge-intensity) along with other variables designed to evaluate whether diversified ownership structures are associated with inter-industry commodity flows. Our regression analysis draws on three empirical measures of diversification: first, the amount of total entropy (i.e., diversification) within an industry; second, the average entropy per firm; and last, the percentage of firms within an industry that diversify.

Suggested Citation

  • Baldwin, John R. & Beckstead, Desmond & Gellatly, Guy & Peters, Alice & Yates, Janice, 2000. "Patterns of Corporate Diversification in Canada: An Empirical Analysis," Analytical Studies Branch Research Paper Series 2000150e, Statistics Canada, Analytical Studies Branch.
  • Handle: RePEc:stc:stcp3e:2000150e
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    References listed on IDEAS

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    2. Jacquemin, Alexis P & Berry, Charles H, 1979. "Entropy Measure of Diversification and Corporate Growth," Journal of Industrial Economics, Wiley Blackwell, vol. 27(4), pages 359-369, June.
    3. Rhoades, Stephen A, 1974. "A Further Evaluation of the Effect of Diversification on Industry Profit Performance," The Review of Economics and Statistics, MIT Press, vol. 56(4), pages 557-559, November.
    4. Gorecki, Paul K, 1975. "An Inter-Industry Analysis of Diversification in the U.K. Manufacturing Sector," Journal of Industrial Economics, Wiley Blackwell, vol. 24(2), pages 131-146, December.
    5. Michael Gort, 1962. "Diversification and Integration in American Industry," NBER Books, National Bureau of Economic Research, Inc, number gort62-1, April.
    6. Miller, Richard A, 1969. "Market Structure and Industrial Performance: Relation of Profit Rates to Concentration, Advertising Intensity, and Diversity," Journal of Industrial Economics, Wiley Blackwell, vol. 17(2), pages 104-118, April.
    7. Baldwin, John R. & Peters, Alice, 2001. "Innovation and Connectivity: The Nature of Market Linkages and Innovation Networks in Canadian Manufacturing Industries," Analytical Studies Branch Research Paper Series 2001165e, Statistics Canada, Analytical Studies Branch.
    8. Sushil Vachani, 1991. "Distinguishing Between Related and Unrelated International Geographic Diversification: A Comprehensive Measure of Global Diversification," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 22(2), pages 307-322, June.
    9. Scherer, F M, 1988. "Corporate Takeovers: The Efficiency Arguments," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 69-82, Winter.
    10. Clarke, R & Davies, S W, 1983. "Aggregate Concentration, Market Concentration and Diversification," Economic Journal, Royal Economic Society, vol. 93(369), pages 182-192, March.
    11. Rhoades, Stephen A, 1973. "The Effect of Diversification on Industry Profit Performance in 241 Manufacturing Industries: 1963," The Review of Economics and Statistics, MIT Press, vol. 55(2), pages 146-155, May.
    12. Lecraw, Donald J, 1984. "Diversification Strategy and Performance," Journal of Industrial Economics, Wiley Blackwell, vol. 33(2), pages 179-198, December.
    13. Maddigan, Ruth J, 1981. "The Measurement of Vertical Integration," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 328-335, August.
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    Citations

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    Cited by:

    1. Beckstead, Desmond & Burrows, Sean & Gellatly, Guy, 2007. "New Economy: Using National Accounting Architecture to Estimate the Size of the High-technology Economy," The Canadian Economy in Transition 2007015e, Statistics Canada, Economic Analysis Division.
    2. Baldwin, John R. & Peters, Alice, 2001. "Innovation and Connectivity: The Nature of Market Linkages and Innovation Networks in Canadian Manufacturing Industries," Analytical Studies Branch Research Paper Series 2001165e, Statistics Canada, Analytical Studies Branch.
    3. Cucculelli, Marco & Le Breton-Miller, Isabelle & Miller, Danny, 2016. "Product innovation, firm renewal and family governance," Journal of Family Business Strategy, Elsevier, vol. 7(2), pages 90-104.
    4. Baldwin, John R. & Beckstead, Desmond & Brown, W. Mark, 2003. "Hollowing-out, Trimming-down or Scaling-up? An Analysis of Head Offices in Canada, 1999 to 2002," Economic Analysis (EA) Research Paper Series 2003019e, Statistics Canada, Analytical Studies Branch.
    5. Baldwin, John R. & Gellatly, Guy, 2007. "Global Links: Multinationals in Canada: An Overview of Research at Statistics Canada," The Canadian Economy in Transition 2007014e, Statistics Canada, Economic Analysis Division.
    6. 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.
    7. Grossmann, Volker, 2007. "Firm size and diversification: Multiproduct firms in asymmetric oligopoly," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 51-67, February.
    8. Laura Rondi & Davide Vannoni, 2005. "Are EU Leading Firms Returning to Core Business? Evidence on Refocusing and Relatedness in a Period of Market Integration," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 27(2), pages 125-145, September.
    9. Martin, John D. & Sayrak, Akin, 2003. "Corporate diversification and shareholder value: a survey of recent literature," Journal of Corporate Finance, Elsevier, vol. 9(1), pages 37-57, January.
    10. Gellatly, Guy & Riding, Allan & Thornhill, Stewart, 2003. "Growth History, Knowledge Intensity and Capital Structure in Small Firms," Economic Analysis (EA) Research Paper Series 2003006e, Statistics Canada, Analytical Studies Branch.

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