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Effects of Corporate Diversification on Productivity

Antoinette Schoar ()

Journal of Finance, 2002, vol. 57, issue 6, 2379-2403

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.

Date: 2002
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