Keywords

corporate diversification, labor productivity, capital misallocation

Abstract

I study the relation between corporate diversification and labor productivity in a sample of over 500,000 firms from 46 countries. Across the entire sample, greater diversification is associated with significantly lower labor productivity. The negative relation between diversification and labor productivity is not stronger in countries with more burdensome employment regulation, but it is significantly stronger in countries with better financial development. In addition, the negative relation is stronger in industries with high capital/labor ratios. Overall, the results suggest that the lower productivity in diversified firms is due more to the misallocation of capital than to the inefficient use of labor.

Original Publication Citation

Inefficient labor or inefficient capital? Corporate diversification and productivity around the world, 2012, Journal of Financial and Quantitative Analysis 47, 1–22.

Document Type

Peer-Reviewed Article

Publication Date

2012

Publisher

Journal of Financial and Quantitative Analysis

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Full Professor

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