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.
*Published:
Journal of Economic Behavior and Organization, December 1992, forthcoming.
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