Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Corporate Diversificaton
Journal of Economic Perspectives
(pp. 163–178)
(Complimentary)
Abstract
This paper documents the significant presence of diversified firms in the U.S. economy and presents three views on why firms diversify. The market power view argues that firms diversify to wield conglomerate power across markets. The agency view argues that diversification is undertaken by managers pursuing their own interests at the expense of the firm's owners. The resource view argues that firms diversify in response to excess capacity in productive factors. A review of recent empirical research finds little support for the market-power view and a substantial amount of evidence that is consistent with the agency and resource views.Citation
Montgomery, Cynthia A. 1994. "Corporate Diversificaton." Journal of Economic Perspectives 8 (3): 163–178. DOI: 10.1257/jep.8.3.163JEL Classification
- M21 Business Economics
- M11 Production Management