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Effects of Corporate Diversification on Productivity

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  • Antoinette Schoar
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.

Suggested Citation

  • Antoinette Schoar, 2002. "Effects of Corporate Diversification on Productivity," Journal of Finance, American Finance Association, vol. 57(6), pages 2379-2403, December.
    • Handle: RePEc:bla:jfinan:v:57:y:2002:i:6:p:2379-2403
    DOI: 10.1111/1540-6261.00500
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    References listed on IDEAS

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