Product scope adjustment is a key mechanism through which multi-product firms achieve
efficient resource allocations. In this paper, we take a novel perspective to study firms'
product scope adjustment behavior through the lens of asset pricing. Using a unique
panel scanner data set containing detailed information on products, matched with the
financial information of their manufacturers, we find that multi-product firms with higher
product turnover have lower financial risks and lower risk premia. To understand this
channel, we propose a stylized model with a time-dependent (Calvo-type) product
turnover rate to highlight the 'risk absorption channel' of product scope adjustment. In
response to an economy-wide shock, a firm that can adjust its product scope more
flexibly shows lower excess equity returns and lower asset volatility.