TY - JOUR
T1 - Technological specialization and the decline of diversified firms
AU - Anjos, Fernando
AU - Fracassi, Cesare
PY - 2018/8/1
Y1 - 2018/8/1
N2 - We document a strong decline in corporate-diversification activity since the late 1970s, and we develop a dynamic model that explains this pattern, both qualitatively and quantitatively. The key feature of the model is that synergies endogenously decline with technological specialization, leading to fewer diversified firms in equilibrium. The model further predicts that segments inside a conglomerate should become more related over time, which is consistent with the data. Finally, the calibrated model also matches other empirical magnitudes well: output growth rate, market-to-book ratios, diversification discount, frequency and returns of diversifying mergers, and frequency of refocusing activity.
AB - We document a strong decline in corporate-diversification activity since the late 1970s, and we develop a dynamic model that explains this pattern, both qualitatively and quantitatively. The key feature of the model is that synergies endogenously decline with technological specialization, leading to fewer diversified firms in equilibrium. The model further predicts that segments inside a conglomerate should become more related over time, which is consistent with the data. Finally, the calibrated model also matches other empirical magnitudes well: output growth rate, market-to-book ratios, diversification discount, frequency and returns of diversifying mergers, and frequency of refocusing activity.
UR - http://www.scopus.com/inward/record.url?scp=85051371550&partnerID=8YFLogxK
U2 - 10.1017/S0022109018000583
DO - 10.1017/S0022109018000583
M3 - Article
AN - SCOPUS:85051371550
SN - 0022-1090
VL - 53
SP - 1581
EP - 1614
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
IS - 4
ER -