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Do conglomerate firms allocate resources inefficiently across industries? Theory and evidence (2002)
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| Venue: | JOURNAL OF FINANCE |
| Citations: | 190 - 15 self |
BibTeX
@MISC{Maksimovic02doconglomerate,
author = {Vojislav Maksimovic and Gordon Phillips},
title = {Do conglomerate firms allocate resources inefficiently across industries? Theory and evidence },
year = {2002}
}
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Abstract
We develop a profit-maximizing neoclassical model of optimal firm size and growth across different industries based on differences in industry fundamentals and firm productivity. In the model, a conglomerate discount is consistent with profit maximization. The model predicts how conglomerate firms will allocate resources across divisions over the business cycle and how their responses to industry shocks will differ from those of single-segment firms. Using plant level data, we find that growth and investment of conglomerate and single-segment firms is related to fundamental industry factors and individual segment level productivity. The majority of conglomerate firms exhibit growth across industry segments that is consistent with optimal behavior.
Keyphrases
conglomerate firm conglomerate firm allocate resource inefficiently single-segment firm industry segment optimal firm size poor job business segment plant level data individual segment level productivity business press claim several recent academic paper fundamental industry factor profit-maximizing neoclassical model firm industry segment single-industry firm similar ability firm productivity industry fundamental optimal behavior different industry firm governance agency theory business cycle financial market incorrect valuation conglomerate discount profit maximization industry shock underperformance share
