Conglomerate Industry Choice and Product Differentiation

Abstract

We analyze the words that rms use to describe their products to examine in which industries rms operate. We nd strong support for the proposition that when asset complementarities across product markets are strong as measured by industry product language overlaps, rms are more likely to operate across industries. More generally, multiple-industry rms avoid industries with more distinct language boundaries, as measured using language transitivity from rival to rival. Multiple-industry rms are also less likely to operate in industries with high within-industry word similarity and high economies of scale. These ndings are consistent with rms choosing organizational form based on product market characteristics and asset complementarities.