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Professor Howard KUNG
Associate Professor of Finance
London Business School

Average product concentration within firms has been declining since the mid-2000s. We find that lower product concentration is associated with lower productivity, expected returns, and idiosyncratic volatility across firms. These empirical relations are explained in a general equilibrium model of multiproduct firms with endogenous firm boundaries. Parameters governing the flexible production technology are identified using the GIV approach of Gabaix and Koijen (2020) by exploiting fat tails in the distribution of product mix. Overall, this paper highlights the importance of firm boundaries for explaining asset prices and firm dynamics.