Learning Not to Diversify: The Transformation of Graduate Business Education and the Decline of Diversifying Acquisitions

Once a preferred strategy, corporate diversification into disparate lines of business has gradually declined in the U.S. over the past several decades. We argue that changes that occurred in a closely related domain—graduate business education—are important in understanding variation in de-diversifi...

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Bibliographic Details
Published in:Administrative science quarterly 2019-06, Vol.64 (2), p.337-369
Main Authors: Jung, Jiwook, Shin, Taekjin
Format: Article
Language:English
Subjects:
Business
Business education
Business students
Chief executives
Cognition
Companies
Decision making
Diversification
Economics
Education
Executives (Business)
Institutional change
Learning
MBA programs & graduates
Mergers
Transformation
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Summary:Once a preferred strategy, corporate diversification into disparate lines of business has gradually declined in the U.S. over the past several decades. We argue that changes that occurred in a closely related domain—graduate business education—are important in understanding variation in de-diversification across firms. Building on a historical account of the transformation of business education, we explain how the rise of financial economics and agency-theoretic logic in business education changed students’ views about diversification. Nearly 20 years later, these MBA graduates rose to top decision-making positions and put the brakes on diversification. Using data on CEOs who ran 640 large U.S. corporations from 1985 to 2015, we show that CEOs who earned an MBA before the 1970s actively pursued diversification, whereas the next cohort of CEOs, who had been exposed to agency-theoretic logic in financial economics, refrained from it. We also demonstrate that the degree of managerial discretion moderated the effect of the CEO’s MBA education. Our study shows that institutional change in one domain (i.e., business education) contributed to change in another domain (i.e., corporate diversification), albeit with a considerable time lag.
ISSN:0001-8392
1930-3815
DOI:10.1177/0001839218768520