Conglomerate Industry Choice and Product Language

We analyze the words that firms use to describe their products so we can examine the determinants of which industries conglomerate firms operate within. Our central finding is that multiple-industry firms operate across industries with higher product language overlap. Multiple-industry firms also avoid industries with more distinct language boundaries and those with more specialized within-industry language. We also find evidence linking these results to specific synergies such as potential entry into new markets and realized synergies in the form of higher 10-K product description growth. These findings are consistent with multiple-product firms operating primarily in industries that lack language specialization. Our findings show that most conglomerates are not true diversified conglomerates with little overlap in their lines of business, as most firms that operate across multiple industries choose industries with high language overlap and potential synergies. Our results support theories of firm organization and organizational language. The online appendix is available at https://doi.org/10.1287/mnsc.2016.2693 . This paper was accepted by Amit Seru, finance.