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Competition from Specialized Firms and the Diversification–Performance Linkage

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  • JUAN SANTALO
  • MANUEL BECERRA

Abstract

In this study, we show that the effect of diversification on performance is not homogeneous across industries and explore analytically and empirically the implications of this finding for the diversification literature. Diversified firms perform better in industries with a small number of nondiversified competitors or, equivalently, when specialized firms have a small combined market share, but worse as the presence of specialized firms increases in the industries in which they compete. The results are robust to the use of methods that alleviate the self‐selection problem and call for a reassessment of the diversification–performance relationship.

Suggested Citation

  • Juan Santalo & Manuel Becerra, 2008. "Competition from Specialized Firms and the Diversification–Performance Linkage," Journal of Finance, American Finance Association, vol. 63(2), pages 851-883, April.
    • Handle: RePEc:bla:jfinan:v:63:y:2008:i:2:p:851-883
    DOI: 10.1111/j.1540-6261.2008.01333.x
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