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Corporate Diversification and Perfor Mance: An Investigation of Causality

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  • Ernest H. Hall Jr.

    (School of Business, University of Southern Indiana, Evansville INDIANA 47712, U.S.A.)

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    Abstract

    The relationship between corporate diversification and organisation perfor Mance has been widely studied in the strategy literature (Christensen and Montgomery 1981; Lubatkin and Rogers 1989; Rumelt 1974, 1982). Although not universally accepted, the general prescription given to firms is that related diversification will lead to superior levels of perfor Mance while unrelated diversification will recognise inferior levels of perfor Mance (Rumelt 1974, 1982). But the issue of causality has not received very much attention (Grant, Jammine and Thomas 1988). The present study will address several questions: What is the effect of a firm's previous perfor Mance on its future diversification? Does diversification determine perfor Mance or does perfor Mance determine diversification? Results suggest that, regardless of strategic type, high levels of profitability may be necessary, but not sufficient requirements for diversification. Likewise, it was found that in certain situations, superior perfor Mance may serve as a substitute for diversification.

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    Bibliographic Info

    Article provided by Australian School of Business in its journal Australian Journal of Management.

    Volume (Year): 20 (1995)
    Issue (Month): 1 (June)
    Pages: 25-42

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    Handle: RePEc:sae:ausman:v:20:y:1995:i:1:p:25-42

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    Web page: http://www.agsm.edu.au

    Related research

    Keywords: CORPORATE DIVERSIFICATION; FIRM PERfor MANCE; CAUSALITY;

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    Cited by:
    1. Nils Braakmann & Joachim Wagner, 2009. "Product Differentiation and Profitability in German Manufacturing Firms," Working Paper Series in Economics 115, University of Lüneburg, Institute of Economics.
    2. Nils Braakmann & Joachim Wagner, 2011. "Product diversification and stability of employment and sales: first evidence from German manufacturing firms," Applied Economics, Taylor & Francis Journals, vol. 43(27), pages 3977-3985.
    3. Nababan, Tongam Sihol & Nababan, Sere Eva & Tampubolon, Bantu, 2005. "Analysis of Relationship Between Market Reactions and Long Term Performance on Acquisitions," MPRA Paper 49110, University Library of Munich, Germany.
    4. Bernd Goerzig & Martin Gornig & Axel Werwatz, 2007. "Produktdiversifizierung: Konvergenz zwischen ost- und westdeutschen Unternehmen, Eine Dekomposition mit Mikrodaten der amtlichen Statistik," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 227(2), pages 168-186, April.
    5. Wagner, Joachim, 2014. "Is Export Diversification good for Profitability? First Evidence for Manufacturing Enterprises in Germany," Working Paper Series in Economics and Institutions of Innovation 353, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    6. Bernd Görzig & Martin Gornig & Ramona Pohl, 2007. "Spezialisierung und Unternehmenserfolg im verarbeitenden Gewerbe Deutschlands," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 76(3), pages 43-58.

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