A General Inter-Industry Relatedness Index
December 2006
Working Paper Number:
CES-06-31
Abstract
Firm growth and expansion is widely believed to be guided by the desire to leverage existing resources. But which resources? The answer depends largely on context.the peculiarities of industries, firms, technologies, production, customers, and a host of other dimensions. This fact makes pointing to any particular set of resources as the source of expansion decisions potentially problematic and makes more difficult tests of theories such as the resource-based view of the firm. This paper tackles the problem by developing a general inter-industry relatedness index that can be usefully applied across industry and firm contexts. The index harnesses the relatedness information embedded in the multi-product organization and diversification decisions of every firm in the US manufacturing economy. The index is general in that it implicitly varies the underlying resources upon which expansion proceeds with the industries in question and provides a percentile relatedness rank for every possible pair of fourdigit SIC manufacturing industries. The general index is tested for predictive validity and found to perform as expected. Applications of the index in strategy research are suggested.
Document Tags and Keywords
Keywords
Keywords are automatically generated using KeyBERT, a powerful and innovative
keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant
keywords.
By analyzing the content of working papers, KeyBERT identifies terms and phrases that capture the essence of the
text, highlighting the most significant topics and trends. This approach not only enhances searchability but
provides connections that go beyond potentially domain-specific author-defined keywords.
:
investment,
production,
manufacturing,
enterprise,
industrial,
company,
technology,
growth,
sector,
industry growth,
diversification,
strategic,
innovation,
diversify
Tags
Tags are automatically generated using a pretrained language model from spaCy, which excels at
several tasks, including entity tagging.
The model is able to label words and phrases by part-of-speech,
including "organizations." By filtering for frequent words and phrases labeled as "organizations", papers are
identified to contain references to specific institutions, datasets, and other organizations.
:
Standard Industrial Classification,
Longitudinal Research Database,
Center for Economic Studies
Similar Working Papers
Similarity between working papers are determined by an unsupervised neural
network model
know as Doc2Vec.
Doc2Vec is a model that represents entire documents as fixed-length vectors, allowing for the
capture of semantic meaning in a way that relates to the context of words within the document. The model learns to
associate a unique vector with each document while simultaneously learning word vectors, enabling tasks such as
document classification, clustering, and similarity detection by preserving the order and structure of words. The
document vectors are compared using cosine similarity/distance to determine the most similar working papers.
Papers identified with 🔥 are in the top 20% of similarity.
The 10 most similar working papers to the working paper 'A General Inter-Industry Relatedness Index' are listed below in order of similarity.
-
Working PaperSpatial Organization of Firms: Internal and External Agglomeration Economies and Location Choices Through the Value Chain
September 2012
Working Paper Number:
CES-12-33
We explore the impact of geographically bounded intra-firm spillovers (internal agglomeration economies) and geographically bounded inter-firm spillovers (external agglomeration economies) on firms' location strategies. Using data from the Census Bureau's Longitudinal Business Database and the U.S. Cluster Mapping Project, we analyze organic expansions of biopharmaceutical firms (by both new establishments and employment increase in existing establishments) in the U.S. in 1993-2005. We consider all activities in the value chain and allow location choices to vary by R&D, manufacturing, and sales. Our findings suggest that (1) internal and external agglomeration economies have separate, positive impacts on location, with relevant differences by activity; (2) internal economies of agglomeration arise within an activity (e.g., among plants) and across activities (e.g., between manufacturing and sales); (3) the effects of internal economies across and within activities vary by activity and type of organic expansion; and (4) across-activity internal economies are asymmetric.View Full Paper PDF
-
Working PaperTHE RELATIONSHIPS AMONG ACQUIRING AND ACQUIRED FIRMS' PRODUCT LINES
September 1990
Working Paper Number:
CES-90-12
This study develops detailed information on the relationships among the activities of acquiring and acquired firms at and near the time of merger for a sample of 94 takeovers undertaken between 1977-1982. We focus on takeovers for two reasons. First, takeovers are an important and controversial phenomenon. Second, takeovers allow us to look at marginal changes, admittedly large ones, in the firm's boundaries. Thus, they provide a useful way of examining relationships among activities of the firm without having to go into great detail regarding the historical decisions that generated the firm's current structure. While the individual establishment is our basic data unit, in this study we aggregate the activities of the firm to the line of business (LOB) level. Each LOB of an acquired firm is classified as to its relationship horizontal, vertical (upstream or downstream), and conglomerate to the LOBs of the acquiring firm. Using these categorizations we aggregate the LOB-level information to the firm level to investigate the degree to which our sample of mergers is specialized to particular types of relationships. While we find a significant group of unspecialized takeovers, most appear to fit a specific category. We also look at the pattern of closed operations immediately following the takeover. Closings are generally concentrated in operations involving horizontal relationships. Finally, we consider the pattern of relationships between hostile and friendly takeovers and whether takeover premiums vary by type of merger. Merger premiums are not related to the type of relationship between the acquiring and acquired firm, but they are tied to whether the takeover is friendly or hostile.View Full Paper PDF
-
Working PaperThe Extent and Nature of Establishment Level Diversification in Sixteen U.S. Manufacturing Industries
August 1990
Working Paper Number:
CES-90-08
This paper examines the heterogeneity of establishments in sixteen manufacturing industries. Basic statistical measures are used to decompose product diversification at the establishment level into industry, firm, and establishment effects. The industry effect is the weakest; nearly all the observed heterogeneity is establishment specific. Product diversification at the establishment level is idiosyncratic to the firm. Establishments within a firm exhibit a significant degree of homogeneity, although the grouping of products differ across firms. With few exceptions, economies of scope and scale in production appear to play a minor role in the establishment's mix of outputs.View Full Paper PDF
-
Working PaperGetting Patents and Economic Data to Speak to Each Other: An 'Algorithmic Links with Probabilities' Approach for Joint Analyses of Patenting and Economic Activity
September 2012
Working Paper Number:
CES-12-16
International technological diffusion is a key determinant of cross-country differences in economic performance. While patents can be a useful proxy for innovation and technological change and diffusion, fully exploiting patent data for such economic analyses requires patents to be tied to measures of economic activity. In this paper, we describe and explore a new algorithmic approach to constructing concordances between the International Patent Classification (IPC) system that organizes patents by technical features and industry classification systems that organize economic data, such as the Standard International Trade Classification (SITC), the International Standard Industrial Classification (ISIC) and the Harmonized System (HS). This 'Algorithmic Links with Probabilities' (ALP) approach incorporates text analysis software and keyword extraction programs and applies them to a comprehensive patent dataset. We compare the results of several ALP concordances to existing technology concordances. Based on these comparisons, we select a preferred ALP approach and discuss advantages of this approach relative to conventional approaches. We conclude with a discussion on some of the possible applications of the concordance and provide a sample analysis that uses our preferred ALP concordance to analyze international patent flows based on trade patterns.View Full Paper PDF
-
Working PaperThe Human Factor in Acquisitions: Cross-Industry Labor Mobility and Corporate Diversification
September 2015
Working Paper Number:
CES-15-31
Internal labor markets facilitate cross-industry worker reallocation and collaboration, and the resulting benefits are largest when the markets include industries that utilize similar worker skills. We construct a matrix of industry pair-wise human capital transferability using information obtained from more than 11 million job changes. We show that diversifying acquisitions occur more frequently among industry pairs with higher human capital transferability. Such acquisitions result in larger labor productivity gains and are less often undone in subsequent divestitures. Moreover, acquirers retain more high skill workers and they exploit the real option to move workers from the target firm to jobs in other industries inside the merged firm. Overall, our results identify human capital as a source of value from corporate diversification and provide an explanation for seemingly unrelated acquisitions.View Full Paper PDF
-
Working PaperDiversification Discount or Premium? New Evidence from BITS Establishment-Level Data
December 2001
Working Paper Number:
CES-01-13
This paper examines whether the finding of a diversification discount in U.S. stock markets is only a data artifact. Segment data may give rise to biased estimates of the value effect of diversification because segments are defined inconsistently across firms, and that inconsistency does not occur at random. I use a new establishment-level database that covers the whole U.S. economy (BITS) to construct business units that are more consistently and objectively defined across firms, and thus more comparable. Using a common methodological approach on a sample of firms which exhibit a diversification discount according to segment data, I find that, when BITS data are used, diversified firms actually trade at a significant average premium. The premium is robust to variations in the method, sample, business unit definition, and measures of excess value and diversification used.View Full Paper PDF
-
Working PaperClusters and Entrepreneurship
September 2010
Working Paper Number:
CES-10-31
This paper examines the role of regional clusters in regional entrepreneurship. We focus on the distinct influences of convergence and agglomeration on growth in the number of start-up firms as well as in employment in these new firms in a given region-industry. While reversion to the mean and diminishing returns to entrepreneurship at the region-industry level can result in a convergence effect, the presence of complementary economic activity creates externalities that enhance incentives and reduce barriers for new business creation. Clusters are a particularly important way through which location-based complementarities are realized. The empirical analysis uses a novel panel dataset from the Longitudinal Business Database of the Census Bureau and the U.S. Cluster Mapping Project (Porter, 2003). Using this dataset, there is significant evidence of the positive impact of clusters on entrepreneurship. After controlling for convergence in start-up activity at the region-industry level, industries located in regions with strong clusters (i.e. a large presence of other related industries) experience higher growth in new business formation and start-up employment. Strong clusters are also associated with the formation of new establishments of existing firms, thus influencing the location decision of multiestablishment firms. Finally, strong clusters contribute to start-up firm survival.View Full Paper PDF
-
Working PaperHiring through Startup Acquisitions: Preference Mismatch and Employee Departures
September 2018
Working Paper Number:
CES-18-41
This paper investigates the effectiveness of startup acquisitions as a hiring strategy. Unlike conventional hires who choose to join a new firm on their own volition, most acquired employees do not have a voice in the decision to be acquired, much less by whom to be acquired. The lack of worker agency may result in a preference mismatch between the acquired employees and the acquiring firm, leading to elevated rates of turnover. Using comprehensive employee-employer matched data from the US Census, I document that acquired workers are significantly more likely to leave compared to regular hires. By constructing a novel peer-based proxy for worker preferences, I show that acquired employees who prefer to work for startups ' rather than established firms ' are the most likely to leave after the acquisition, lending support to the preference mismatch theory. Moreover, these departures suggest a deeper strategic cost of competitive spawning: upon leaving, acquired workers are more likely to found their own companies, many of which appear to be competitive threats that impair the acquirer's long-run performance.View Full Paper PDF
-
Working PaperDo Market Leaders Lead in Business Process Innovation? The Case(s) of E-Business Adoption
April 2011
Working Paper Number:
CES-11-10
This paper investigates the relationship between market position and the adoption of IT-enabled process innovations. Prior research has focused overwhelmingly on product innovation and garnered mixed empirical support. I extend the literature into the understudied area of business process innovation, developing a framework for classifying innovations based on the complexity, interdependence, and customer impact of the underlying business process. I test the framework's predictions in the context of ebuying and e-selling adoption. Leveraging detailed U.S. Census data, I find robust evidence that market leaders were significantly more likely to adopt the incremental innovation of e-buying but commensurately less likely to adopt the more radical practice of e-selling. The findings highlight the strategic significance of adjustment costs and co-invention capabilities in technology adoption, particularly as businesses grow more dependent on new technologies for their operational and competitive performance.View Full Paper PDF
-
Working PaperClusters, Convergence, and Economic Performance
October 2010
Working Paper Number:
CES-10-34
This paper evaluates the role of regional cluster composition in the economic performance of industries, clusters and regions. On the one hand, diminishing returns to specialization in a location can result in a convergence effect: the growth rate of an industry within a region may be declining in the level of activity of that industry. At the same time, positive spillovers across complementary economic activities provide an impetus for agglomeration: the growth rate of an industry within a region may be increasing in the size and strength (i.e., relative presence) of related economic sectors. Building on Porter (1998, 2003), we develop a systematic empirical framework to identify the role of regional clusters ' groups of closely related and complementary industries operating within a particular region in regional economic performance. We exploit newly available data from the US Cluster Mapping Project to disentangle the impact of convergence at the region-industry level from agglomeration within clusters. We find that, after controlling for the impact of convergence at the narrowest unit of analysis, there is significant evidence for cluster-driven agglomeration. Industries participating in a strong cluster register higher employment growth as well as higher growth of wages, number of establishments, and patenting. Industry and cluster level growth also increases with the strength of related clusters in the region and with the strength of similar clusters in adjacent regions. Importantly, we find evidence that new industries emerge where there is a strong cluster environment. Our analysis also suggests that the presence of strong clusters in a region enhances growth opportunities in other industries and clusters. Overall, these findings highlight the important role of cluster-based agglomeration in regional economic performance.View Full Paper PDF
