The Effects of Corporate Restructuring on Aggregate Industry Specialization

Abstract

It has been widely argued that the purpose of corporate restructuring during the 1980s was to produce a population of more industry‐specialized, competitive firms in response to intensifying global competition. A number of studies show that corporate restructuring resulted in increased corporate focus during the 1980s. However, no study has yet examined whether corporate restructuring resulted in increased specialization at the industry level during the 1980s. This study examines this issue. First, we examine whether or not aggregate industry specialization increased during the 1980s. That is, we ask: did the average firm in any given U.S. industry become more or less specialized to that industry during the 1980s? Second, we examine whether corporate restructuring was a significant determinant of change in aggregate industry specialization during the 1980s. Using a sample of 686 four‐digit SIC industries and 64 two‐digit industry groups, this study finds that aggregate industry specialization declined very slightly at both the four‐digit and two‐digit level between 1981 and 1989. This study also finds that sell‐offs of establishments through corporate control transactions or interfirm asset sales had no significant effect on aggregate industry specialization.

Shareholder Value and the Transformation of the U.S. Economy, 1984–20001

“…Economists use industry data frequently (see, e.g., Baumol et al. , 2003; Hatfield et al. , 1996; Smyth, 1986; Wolff, 2002).…”

The effect of financial hedging on the incentives for corporate diversification: The role of stakeholder firm-specific investments

“…Between 1990 and 1996, for instance, diversified firms owned about 60 percent of the total assets of firms trading on U.S. stock markets(Villalonga, 2004). Furthermore, despite the emphasis placed on corporate refocusing due to the findings about the "diversification discount", research shows that firm restructuring during the 1980s resulted in lower, rather than higher, aggregate industry specialization(Hatfield et al, 1996).…”

Central Perspectives and Debates in Strategic Change Research

“…With regard to intermediate outcomes, studies show that strategic change has significant effects on TMT behaviour (Bartunek and Franzak ; Wiersema and Bantel ) and on aggregate industry specialization (Hatfield et al . ). For example, in an examination of whether corporate restructuring results in increased aggregate industry specialization in a broad sample of US industries during the 1980s, Hatfield et al .…”

“…For example, in an examination of whether corporate restructuring results in increased aggregate industry specialization in a broad sample of US industries during the 1980s, Hatfield et al . () show that the addition and expansion of capacity increased aggregate industry specialization, while the emergence of new competitors had the opposite effect.…”