Abstract
We examine the effect of financial dependence on acquisition and investment within existing industries by single-segment and conglomerate firms for industries undergoing different long-run changes in industry conditions. Conglomerates and single-segment firms differ more for within-industry acquisitions, while capital expenditure rates are similar across organizational type. In particular, 36 percent of within-industry growth by conglomerate firms in growth industries is from intra-industry acquisitions versus nine percent for single-segment firms. Financial dependence, a deficit in a segment's internal financing, decreases the likelihood of within-industry acquisitions and opening new plants, especially for single-segment firms. These effects are mitigated for conglomerates in growth industries and also for firms that are publicly traded. We also find that plants acquired by conglomerate firms in growth industries increase in productivity post-acquisition. In declining industries, plants of segments that are financially dependent are less likely to be closed by conglomerate firms. These findings persist after controlling for firm size and segment productivity. The results are consistent with the comparative advantages of different firm organizations differing across long-run industry conditions.
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