UNDERSTANDING CORPORATE COHERENCE - THEORY AND EVIDENCE

Multiproduct firms are perceived to be coherent in their scope, yet th ere is no strong theoretical foundations to explain coherence in moder n industrial organization theory. This paper shows that as U.S. manufa cturing firms grow more diverse, they maintain a constant level of coh erence between neighboring activities. This finding runs counter to th e idea that firms with many activities are generally more 'incoherent' . A framework is then presented which appeals to the nature of enterpr ise learning, path dependencies, and the nature of the selection envir onment to explain the ubiquity of coherent diversifiers.