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We study how firms differ from their competitors using new dynamic measures of product differentiation based on novel text based analysis of 50,673 product descriptions from firm 10-K statements filed yearly with the Securities Exchange Commission. This year-by-year set of firm product differentiation measures allows us to generate a set of dynamic industry classifications and new measures of industry structure and competition. Competitiveness and market structure measures based on these new classifications better correlate with firm profitability than do classifications based on SIC or NAICs. Using these new dynamic industry classifications, we examine endogenous product differentiation. We show that firms use R&D and advertising to differentiate themselves from competitors and increase their profitability.

Zonder onderwerpscode: economie

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We use text-based analysis of business descriptions from 10-Ks filed with the SEC to examine in which industries conglomerates are most likely to operate and to understand conglomerate valuations. We find that conglomerates are most likely to operate in industry pairs that are closer together in the product space and in industry pairs that have profitable opportunities "between" them. Examining cross-sectional conglomerate valuations, we find that conglomerates that are more difficult to reconstruct using text-analysis of firm pure plays and that span high value industries tend to trade at modest premia. The conglomerates that are most easy to replicate trade at small discounts relative to matched pure-play firms. These findings are consistent with conglomerate firms generating product synergies when producing in related profitable industries not spanned by single-segment firms.

Zonder onderwerpscode: economie

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We examine the relation between venture capital (VC) investments and mergers and acquisitions (M&A) activity around the world. We find evidence of a strong positive association between VC investments and lagged M&A activity, consistent with the hypothesis that an active M&A market provides viable exit opportunities for VC companies and therefore incentivizes them to engage in more deals. We also explore the effects of country-level pro-takeover legislation passed internationally (positive shocks), and US state-level antitakeover business combination laws (negative shocks), on VC activity. We find significant post-law changes in VC activity. VC activity intensifies after enactment of country-level takeover friendly legislation and decreases following passage of state antitakeover laws in the U.S.

Zonder onderwerpscode: economie

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