Technological diversity,related diversification,and firm performance

Previous findings that related diversification creates value have been called into question over concerns about methodology and measures. Reviewing existing theory to consider how a firm's knowledge base interacts with its product market activity, I address several of these concerns by creating a measure of technological diversity based on citation‐weighted patents. The measure indicates a firm's opportunity for corporate diversification based on economies of scope in valuable knowledge assets, is defined for both single‐ and multibusiness firms, and is not correlated with more fundamental aspects of diversification, such as the number of businesses in the corporate portfolio. Evidence from a large sample of firms shows the positive relationship between diversification based on technological diversity and market‐based measures of performance, controlling for R&D intensity and capital intensity as further indicators of the type of assets underlying diversification. Results hold when controlling for the endogeneity of diversification and performance in a cross‐sectional sample or when controlling for unobserved factors using panel data. Copyright © 2006 John Wiley & Sons, Ltd.     

Power dependence,diversification strategy,and performance in keiretsu member firms

Conceptualizing the keiretsu as a power‐dependence system, we propose that benefits accruing from keiretsu affiliation differ across member firms, depending on their power in (or dependence on) the keiretsu. By integrating power with governance and internal market perspectives on group affiliation, we develop and find general support for the hypotheses that powerful keiretsu member firms are able to place more emphasis on growth in pursuing product and international diversification, whereas less powerful keiretsu member firms are subject to strong monitoring and emphasize profitability. These findings provide support to the study's proposition that power‐dependence relationships in a keiretsu influence member firms' appropriation of group affiliation benefits in pursuing diversification strategies. Copyright © 2004 John Wiley & Sons, Ltd.     

The measurement of corporate portfolio strategy: analysis of the content validity of related diversification indexes

Measures developed for the analysis of corporate diversification have become fundamental to a broad range of strategy research. This paper examines the content validity of the two most widely used continuous measures of related diversification—the related component of the entropy index and the concentric index—and raises fundamental questions about their validity as indicators of portfolio relatedness. These questions are not driven by the use of SIC data for estimation of the indexes; they involve validity problems intrinsic to the construction of the measures. The related component of entropy and the concentric index are sensitive to features of corporate portfolio composition that may not be directly linked to portfolio relatedness. These sensitivities can create important ambiguities in strategy research. Copyright © 2002 John Wiley & Sons, Ltd.     

Foreign‐based competition and corporate diversification strategy

Since the mid‐1980s U.S. domestic firms have faced significant increases in foreign‐based (i.e., import) competition as reductions in barriers to international commerce have resulted in markets and industries becoming increasingly global. Despite the growing and widespread importance of foreign‐based competition, the influence that such competition may exert on corporate diversification strategy is a question largely overlooked in the strategic management literature. This paper examines the impact of foreign‐based competition in a firm's core business on both the level and nature of a firm's diversification strategy at the corporate level in a panel dataset of U.S. firms over the period 1985–94. Our findings provide the first evidence that increased foreign‐based competition is indeed a statistically significant factor explaining both the reduced business‐level diversity and the increased strategic focus of U.S. firms that has been widely perceived over the past two decades. Copyright © 2005 John Wiley & Sons, Ltd.     

The relationship between corporate diversification and corporate social performance

Does diversification affect firm response to stakeholder demands and social issues? Despite extensive interest in corporate diversification in the strategy literature, the relationship between diversification and corporate social performance (CSP) remains largely unexplored. In this study, I propose that the level of diversification will be positively related to the CSP of firms. However, when diversified firms have a strong focus on short‐term profit, it may discourage firm response to stakeholder demands and investment in social issues, thereby negatively moderating the positive relationship between the level of diversification and CSP. Empirical testing on a sample of U.S. firms generally supports my predictions. Copyright © 2012 John Wiley & Sons, Ltd.     

Intra‐industry diversification and firm performance

We study how intra‐industry product diversity affects firm performance by analyzing the implications of expanding a firm's product line within its core business. We conjecture that increases in product diversity initially undermine performance because of negative transfer effects but then improve it due to economies of scope. We further theorize that this U‐shaped effect of product diversity becomes more pronounced as the firm increases the intensity of its technology investment, yet is likely to be attenuated by the firm's accumulated experience with intra‐industry diversification. Data on 156 U.S.‐based software firms operating from 1990 to 2001 furnish support for these conjectures. Our study advances emerging research on intra‐industry diversification by underscoring some of its contingent performance effects. Copyright © 2013 John Wiley & Sons, Ltd.     

Effects of intra- and inter-regional geographic diversification and product diversification on export performance: Evidence from the Chilean fresh fruit export sector

This study examines individually the effects of intra- and inter-regional geographic diversification on the export performance of firms from the Chilean fresh fruit sector. It also explores the direct effect of related product diversification on export performance and its role as a moderator in the relationship between geographic diversification and export performance. By employing panel trade data of 279 purely exporting firms over a six-years period (2010–2015), we found that both intra- and inter-regional diversification have an inverted U-shaped relationship with export performance, where moderate levels of diversification have positive effects on export performance, but higher levels may be counterproductive. Results also showed that related product diversification has a positive effect on firm export performance and a negative moderating effect on the relationship between inter-regional diversification and export performance. In the case of intra-regional diversification, we did not find any moderating effect from product diversification. By focusing on firms from the agricultural sector based in an emerging economy, this study offers practical implications for firm managers, trade organizations and private export associations, that may also be applicable to other export-based activities and emerging economies.     

Product diversification in international joint ventures: performance implications in an emerging market

This study extends product diversification research to a new organizational form (IJV) and a new environmental context (emerging market). It explores the extent to which product relatedness with both foreign and local parents affects IJV performance as perceived by venture managers. After controlling for relevant variables, analysis of the data containing 134 IJVs in China validates our major premise: the relatedness of an IJV's products with that of its foreign and local parents is positively associated with its performance. An IJV maintaining bilateral related diversification (i.e., with both parents) performs better than a venture maintaining a unilateral related linkage (i.e., with one parent), which in turn outperforms an IJV which is unrelated to either parent. When resource complementarity or goal congruity between parents is higher, there is a stronger positive relationship between product relatedness and IJV performance. When structural opportunities are fewer or institutional deterrence is higher, there is a weaker positive relationship between product relatedness and IJV performance. Copyright © 2002 John Wiley & Sons, Ltd.     

Linking corporate strategy to capital structure: diversification strategy,type and source of financing

This study examines the relationship between corporate strategy and capital structure, specifically the diversfication and financing strategies of a firm. The results show that equity financing is preferred for related diversification and unrelated diversification is associated with debt financing. Additionally, firms diversifying through acquisitions are more likely to use public sources of financing and those emphasizing internal development of new businesses depend primarily on private sources of financing. Using simultaneous equation estimation, we found a reciprocal relationship between a firm's financial strategy and its corporate diversification strategy. Mode and nature of diversification are also reciprocally interrelated. © 1998 John Wiley & Sons, Ltd.     

Firms' technological resources and the performance effects of diversification: a longitudinal study

While agency theory claims managerial self‐interest creates a diversification discount, strategic theory explains that firms with certain kinds of resources should diversify. Longitudinal data on 227 firms that diversify between 1980 and 1992 reveal that the sample firms invest less in R&D and have greater breadth of technology (based on patent citations) than their industry peers prior to the diversification event. Also, acquiring firms may appear to have lower performance because of accounting conventions and because firms that use internal growth rather than acquisition pursue less extensive diversification. These findings help explain how diversification and financial performance are endogenous. Copyright © 2004 John Wiley & Sons, Ltd.     

Strategic consensus and performance: the role of strategy type and market‐related dynamism

This paper examines the link between consensus among senior managers and performance at the SBU level and considers factors which may moderate the strength of this relationship. Using data from a cross‐national study in three industry sectors, the authors find that consensus increases the performance of the SBU in the case of a differentiation strategy but not in the case of a low‐cost strategy. Additionally, the relationship between consensus on a differentiation strategy and performance is negatively influenced by dynamism of the market. This research thus clarifies and extends prior consensus research by indicating the conditions under which consensus positively affects performance. For managers, our results indicate that investing managerial time in obtaining consensus is more important for a differentiation than for a low‐cost strategy and is particularly important when using a differentiation strategy in a stable environment. Copyright © 1999 John Wiley & Sons, Ltd.     

Core business regulation and dual diversification patterns in the telecommunications industry

A firm is confronted with the separate decisions of product and international diversification. It is suggested that these postures are linked to external contingencies in firms who face core business regulation. A technique is developed to explain dual diversification patterns using evidence obtained from the new industry comprised of the Regional Bell Operating Companies (RBOCs).     

International diversification,subsidiary performance,and the mobility of knowledge resources

We examine the link between international diversification, organizational knowledge resources, and subsidiary performance. The success of international corporate diversification depends on a firm's capability to transfer knowledge to its subsidiaries, and how its local subsidiaries effectively utilize that knowledge. As knowledge resources are imperfectly mobile, a firm may find it difficult to transfer knowledge to its subsidiaries. In our analysis of 4964 Japanese subsidiaries over a 14‐year period, we find that knowledge that is valuable, but not rare, positively affects subsidiary performance in the short term, but not the long term. In contrast, knowledge that is both valuable and rare affects subsidiary performance in the long term, but not the short term. Copyright © 2007 John Wiley & Sons, Ltd.     

The performance implications of intra‐ and inter‐regional geographic diversification

Engaging the debate regarding the appropriate level of geographic diversification for multinational enterprises (MNEs), we examine a critical, yet unresolved, question: How is performance impacted by the MNE's level of intra‐ and inter‐regional diversification versus the total level of geographic diversification? Using data from 123 U.S.‐based MNEs over a seven‐year period and leveraging both sales‐based and subsidiary‐based measures for diversification, we find that performance increases at an increasingly higher rate as firms concentrate more heavily on intra‐regional diversification. Regarding inter‐regional diversification and total geographic diversification, we find inverted‐U relationships to exist between firm performance and the level of geographic diversification. Different from recent research on multinationality, our robustness checks indicate no evidence of a sigmoidal relationship between the degree of regional diversification and performance. Copyright © 2010 John Wiley & Sons, Ltd.     

Structure and process of diversification,compensation strategy,and firm performance

This study tests six hypotheses on the extent to which a match between compensation and diversification strategies affects firm performance. Using both archival and survey data, results generally support the notion that a firm's compensation strategies make a greater contribution to firm performance if these are attuned to extent and process of corporate diversification. The paper concludes with a set of recommendations for future research on compensation-diversification strategy relations and their interactive effect on firm performance.     

Prior performance characteristics of related and unrelated acquirers

In the diversification literature, studies, particularly those using accounting‐based performance measures, have found that related diversifiers are more profitable and that related diversifiers are in more profitable industries than unrelated diversifiers. Due to the very nature of these studies based on cross‐sectional data, however, the causal relationship between diversification strategy and performance was not clear. This paper focuses on a single event of a large acquisition, which enables us to better identify the sequential relationships between prior firm profitability, prior industry profitability, and subsequent acquisition strategies. By doing so, this paper makes clearer the causal relationships between firm profitability, industry profitability, and acquisition strategies. Copyright © 2003 John Wiley & Sons, Ltd.     

MNC strategies,exogenous shocks,and performance outcomes

This paper examines the effect of international diversification on multinational corporation (MNC) performance in the face of exogenous shocks in the global business environment, and the extent to which MNCs' internationalization aids or impedes post‐shock performance. We use the September 11, 2001 attacks as a research setting to investigate the relationship between international diversification and MNC performance after a sudden change in the environment. The empirical tests on a sample of 191 U.S. MNCs and a matched sample of non‐U.S. MNCs indicate that the level of pre‐September 11 international diversification is negatively correlated with immediate cumulative abnormal returns to shares, but positively correlated with longer‐term performance. Copyright © 2011 John Wiley & Sons, Ltd.     

Research notes and communications corporate restructuring and strategic change: The effect on diversification strategy and R & D intensity

In the 1980s a number of large corporations restructured their diversified businesses through divestitures. It is hypothesized that restructuring activity focused on firms at intermediate levels of diversification (e.g., related-linked) which have a mixture of related and unrelated business units. Results confirm this hypothesis which explains that such mixed corporate strategies create organizational and control inefficiencies in managing both related and unrelated types of business units. Restructured firms were also found to move towards two types of different internal capital markets (related and unrelated). Most restructuring firms moved toward lower levels of diversification (e.g., related-constrained), although some moved toward higher levels of diversification (e.g., unrelated business). Also, this study finds restructuring firms that changed their corporate strategy by reducing diversified scope increased their R&D intensity. Firms that restructured and increased their diversified scope decreased R&D intensity. This result suggested a partial substitution between diversification and R&D activity.     

SBU strategy and performance: The moderating effects of the corporate-SBU relationship

This study suggests that the link between an SBU strategy and performance is moderated by the SBU's relationship with corporate management. Information processing arguments suggest that this relationship, typically characterized by general measures of centralization, has been inappropriately conceptualized in prior research. An alternative view, one that considers which decisions and activities should be controlled by the individual SBU, is proposed and tested. The results of a study of 496 SBUs indicate that SBU performance is enhanced when: (1) SBUs with an external strategic orientation control environmental monitoring activities and strategic decision analysis, and (2) SBUs with an intraorganizational orientation control those activities relating to operations. Weaker SBU performance is associated with SBU control over those functions and activities not central to the SBU's business strategy. Therefore, it is suggested that the corporate-SBU relationship can either facilitate or inhibit the implementation of the SBU's intended strategy.     

The effects of leveraged buyouts on corporate growth and diversification in large firms

This study investigates the effects of LBOs on corporate growth and diversification in large U.S. firms which underwent leveraged buyouts during the 1980s. Based on the analysis, this study found that revenue and employee growth are significantly lower in LBO firms than in control firms that remained public. Strategically, we find that LBO firms decreased the size of both their periphery and core businesses more than public control firms and that LBO firms divested a significantly higher volume of periphery and core businesses than control firms. These postbuyout differences between LBO and public firms are consistent with the argument that LBO firms provide managers with incentives to downsize and prune lines of business, resulting in reduction in overall firm size and diversifcation.