Using a broad sample of firms in the years 1985-2003, I find evidence to support Stein's (2002) model that implies that a diversified, or multi-divisional, firm structure is better suited to firms whose activities can be categorized as producing hard, rather then soft, information. Using spending on R&D and advertising as proxies for information "softness," I find that firms that generate more soft information are less likely to be observed in a multi-divisional firm structure. Furthermore, I find evidence to support the hypothesis that the market places a lower value on soft-information intensive conglomerates relative to hard-information conglomerates. I find mixed evidence as to whether conglomerate firms spend less on R&D relative to standalone firms, when controlling for other possible determinants of R&D.
