Does the Diversification–Firm Performance Relationship Change Over Time? A Meta‐Analytical Review

We study the relationship between diversification and firm performance in the context of the decline in levels of diversification over time. We argue that the pressure to reduce diversification may have more strongly affected those firms whose diversification strategies were most detrimental to firm...

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Bibliographic Details
Published in:Journal of management studies 2019-01, Vol.56 (1), p.270-298
Main Authors: Schommer, Monika, Richter, Ansgar, Karna, Amit
Format: Article
Language:English
Subjects:
corporate refocusing
Diversification
firm performance
Meta-analysis
Organizational performance
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Summary:We study the relationship between diversification and firm performance in the context of the decline in levels of diversification over time. We argue that the pressure to reduce diversification may have more strongly affected those firms whose diversification strategies were most detrimental to firm performance. We employ meta‐analytical regression (MARA) in order to test our hypotheses, using a total of 267 primary studies containing 387 effect sizes based on 150,000 firm‐level observations from over 60 years of research on the diversification–firm performance relationship. The findings suggest that levels of unrelated diversification have decreased, whereas levels of related diversification have increased since the mid‐1990s, following an initial decrease in the 1970s and 1980s. Furthermore, we find that the relationship between unrelated diversification and firm performance has improved significantly over time, whereas the relationship between related diversification and performance has remained relatively stable.
ISSN:0022-2380
1467-6486
DOI:10.1111/joms.12393