| Abstract: | 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. |
