Do Conglomerate Firms Allocate Resources Inefficiently Across Industries ? Theory and Evidence

@inproceedings{Maksimovic2002DoCF,
  title={Do Conglomerate Firms Allocate Resources Inefficiently Across Industries ? Theory and Evidence},
  author={Vojislav Maksimovic and Gordon Phillips},
  year={2002}
}
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… CONTINUE READING
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