Curvilinearity in the diversification-performance linkage: an examination of over three decades of research

While an extensive literature examines the diversification-performance relationship, little agreement exists concerning the nature of this relationship. Both theoretical and empirical disagreements abound. This study synthesizes findings from three decades of research to address major theoretical is...

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Bibliographic Details
Published in:Strategic management journal 2000-02, Vol.21 (2), p.155-174
Main Authors: Palich, Leslie E., Cardinal, Laura B., Miller, C. Chet
Format: Article
Language:English
Subjects:
Applied sciences
Business risks
Business structures
Capital formation
Comparative studies
Competition
Competitive advantage
Conglomerate mergers
Corporate strategies
corporate strategy
curvilinearity
Diversification
Economic methodology
Economic performance
Economics
Effects
Exact sciences and technology
Financial portfolios
Firm modelling
General aspects
Industrial economics
Investment risk
Management
Market efficiency
Operational research and scientific management
Operational research. Management science
Organization theory
Portfolio diversification
Predation
Predatory pricing
Product diversification
Regression analysis
Strategic management
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Summary:While an extensive literature examines the diversification-performance relationship, little agreement exists concerning the nature of this relationship. Both theoretical and empirical disagreements abound. This study synthesizes findings from three decades of research to address major theoretical issues that remain open to debate. We derive three competing models from the literature and empirically assess these using meta-analytic data drawn from 55 previously published studies. The results of our tests indicate that moderate levels of diversification yield higher levels of performance than either limited or extensive diversification. Thus, we provide support for the curvilinear model; that is, performance increases as firms shift from single-business strategies to related diversification, but performance decreases as firms change from related diversification to unrelated diversification. The results also indicate major effects from variation in diversification and performance operationalizations.
ISSN:0143-2095
1097-0266
DOI:10.1002/(SICI)1097-0266(200002)21:2<155::AID-SMJ82>3.0.CO;2-2