Diversification, Ricardian Rents, and Tobin's q

Cynthia A. Montgomery and Birger Wernerfelt

RAND Journal of Economics, 1988, vol. 19, issue 4, 623-632

Abstract: According to prevailing theory, firms diversify in response to excess capacity of factors that are subject to market failure. By probing into the heterogeneity of these factors, we develop the corollary that firms that elect to diversify most widely should expect the lowest average rents. An empirical test, with Tobin's q as the measure of rents, is consistent with this theory.

Date: 1988
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