Alphabet and Google

Peter Klein has an interesting Rand Journal piece (pdf) on conglomerates:

This paper challenges the conventional wisdom that the 1960s conglomerates were inefficient. I offer valuation results consistent with recent event-study evidence that markets typically rewarded diversifying acquisitions. Using new data, I compute industry-adjusted valuation, profitability, leverage, and investment ratios for thirty-six large, acquisitive conglomerates from 1966 to 1974. During the early 1970s, the conglomerates were less valuable and less profitable than standalone firms, favoring an agency explanation for unrelated diversification. In the 1960s, however, conglomerates were not valued at a discount. Evidence from acquisition histories suggests that conglomerate diversification may have added value by creating internal capital markets.

In other words, today’s Google announcement isn’t as crazy as it may sound.  Here is further positive evidence on conglomerates, and Glenn Hubbard also thinks the 1960s conglomerates were largely efficient.  Here is some evidence, however, that conglomerates tend to be less innovative.  Scharfstein and Stein are less positive more generally.  Here is some evidence that the non-Google divisions will receive favoritism in the allocation of capital within the conglomerate.  That all said, conglomerates are understudied in microeconomics, in part because they are hard to study.

What do you all think of the news?