Working Paper: NBER ID: w30672
Authors: Gerard Hoberg; Gordon M. Phillips
Abstract: We provide evidence that over the past 30 years, U.S. firms have expanded their scope of operations. Increases in scope and scale were achieved largely without increasing traditional operating segments. Scope expansion significantly increases valuation and is primarily realized through acquisitions and investment in R&D, but not through capital expenditures. We show that traditional concentration ratios do not capture this expansion of scope. Our findings point to a new type of firm that increases scope through related expansion, which is highly valued by the market.
Keywords: scope expansion; firm valuation; acquisitions; R&D investment; market power
JEL Codes: D20; D43; G30; O31; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased scope (H11) | more acquisitions (G34) |
| increased scope (H11) | fewer divestitures (G34) |
| increased scope (H11) | more R&D spending (O32) |
| increased scope (H11) | increased vertical integration (L22) |
| increased scope (H11) | higher valuations (G19) |
| increased scope (H11) | lower return on assets (G32) |