Professor Kenneth Ahern will present the paper “The Conglomerate Network”.
This paper proposes a network model of the economy in which conglomerate firms transmit idiosyncratic shocks from one industry to another. The strength of interindustry connections in the network is determined by two factors: 1) conglomerates’ market shares of total industry sales, and 2) the distribution of a conglomerate’s total sales across industries. From these two factors, the model generates a new measure of cross-industry concentration that extends the widely-used Herfindahl index. Consistent with the model’s predictions, the empirical results show that industry growth rates comove more strongly within industry pairs that are more closely connected in the conglomerate network. These results hold after controlling for industry-pair and year fixed effects, input-output connections, reverse causality, and in tests that exploit exogenous cross-sectional industry shocks from import tariff changes.