Journal of Economic Perspectives: Vol. 8 No. 3 (Summer 1994)

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Corporate Diversificaton

Article Citation

Montgomery, Cynthia A. 1994. "Corporate Diversificaton." Journal of Economic Perspectives, 8(3): 163-178.

DOI: 10.1257/jep.8.3.163

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.

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Authors

Montgomery, Cynthia A. (Harvard Business School)

JEL Classifications

M21: Business Economics
M11: Production Management

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