Working Paper: NBER ID: w3231
Authors: Frank R. Lichtenberg; Jerome Levy
Abstract: Due in large part to intense takeover activity during the 1980s, the extent of American firms' industrial diversification declined significantly during the second half of the decade. The mean number of industries in which firms operated declined 14 percent, and the fraction of single-industry firms increased 54 percent. Firms that were "born" during the period were much less diversified than those that "died", and "continuing" firms reduced the number of industries in which they operated. using plant-level Census Bureau data, we show that productivity is inversely related to the degree of diversification: holding constant the number of the parent firm's plants, the greater the number of industries in which the parent operates, the lower the productivity of its plants. Hence de-diversification is one of the means by which recent takeovers have contributed to U.S. productivity growth. We also find that the effectiveness of regulations governing disclosure by companies of financial information for their industry segments was low when they were introduced in the 1970s and has been declining ever since.
Keywords: industrial diversification; productivity; corporate takeovers; dediversification
JEL Codes: D24; L22; L25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Degree of diversification (L25) | Productivity (O49) |
| Dediversification (L19) | Productivity (O49) |