← Search

Conglomerates and Industry Distress

Radhakrishnan Gopalan¹; Kangzhen Xie²

¹ Washington University in St. Louis · ² Sam M. Walton College of Business, University of Arkansas

Focusing on economic distress episodes in an industry, we estimate the effect of conglomeration on resource allocation. Distressed segments have higher sales growth, higher cash flow, and higher expenditure on research and development than single-segment firms. This is especially true for segments with high past performance, for unrated firms, and in competitive industries. Single-segment firms increase cash holding, and the diversification discount reduces during industry distress. Firms with high past performance acquire their industry counterparts, and firms with low past performance exit the distressed industry. Industries more prone to distress have greater conglomeration. Overall, conglomeration enables segments to avoid financial constraints during industry distress. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: [email protected]., Oxford University Press.

DOI

10.1093/rfs/hhr060

Volume

24 (11)

Pages

3642-3687

Language

en

Export

BibTeX

Sources

openalex crossref