Shopping for Information? Diversification and the Network of Industries

We propose and test a view of corporate diversification as a strategy that exploits internal information markets, by bringing together information that is scattered across the economy. First, we construct an interindustry network using input-output data, to proxy for the economy’s information struct...

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Bibliographic Details
Published in:Management science 2015-01, Vol.61 (1), p.161-183
Main Authors: Anjos, Fernando, Fracassi, Cesare
Format: Article
Language:English
Subjects:
Analysis
Conglomerate corporations
Conglomerates
corporate diversification
Corporate governance
Diversification
Diversification in industry
Information systems
innovation
input-output tables
Markets
networks
Shopping
Social network analysis
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Summary:We propose and test a view of corporate diversification as a strategy that exploits internal information markets, by bringing together information that is scattered across the economy. First, we construct an interindustry network using input-output data, to proxy for the economy’s information structure. Second, we introduce a new measure of conglomerate informational advantage, named “excess centrality,” which captures how much more central conglomerates are relative to specialized firms operating in the same industries. We find that high-excess-centrality conglomerates have greater value, and produce more and better patents. Consistent with the internal-information-markets view, we also show that excess centrality has a greater effect in industries covered by fewer analysts and in industries where soft information is important. This paper was accepted by Gustavo Manso, finance.
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.2014.2060