UNDERSTANDING CORPORATE COHERENCE - THEORY AND EVIDENCE

Multiproduct firms are perceived to be coherent in their scope, yet there is no strong theoretical foundations to explain coherence in modern industrial organization theory. This paper shows that as U.S. manufacturing firms grow more diverse, they maintain a constant level of coherence between neighboring activities. This finding runs counter to the idea that firms with many activities are generally more 'incoherent'. A framework is then presented which appeals to the nature of enterprise learning, path dependencies, and the nature of the selection environment to explain the ubiquity of coherent diversifiers.