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Diversification, Organizational Adjustment and Firm Performance: Evidence from Microdata

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Author Info
Evan Rawley
Abstract

This paper proposes that diversification taxes firms’ existing organizational systems by altering routines, formal contract structures and strategies. I test the proposition that organizational adjustment costs associated with diversification erode incumbent competitive advantage, using novel microdata on taxicab firms from the Economic Census. The tests exploit exogenous local characteristics of taxi markets to identify the impact of diversification on firm organization and performance. Supporting the contention that diversification leads to organizational adjustments, the results show that diversifying firms are less likely to adopt computerized dispatching systems for their taxicabs and make significant changes in their formal contract structures governing asset ownership. Consistent with the theory, diversification is associated with falling taxi productivity. Comparing the productivity of diversified and focused start-ups and incumbent firms reveals that the organizational change component of diversification accounts for an 18% decrease in paid ride-miles per taxi. The results support the core contention of the paper that diversification taxes firms’ existing organizational capital.

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File URL: http://webserver01.ces.census.gov/index.php/ces/1.00/cespapers?down_key=101802
File Format: application/pdf
File Function: First version, 2007
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Publisher Info
Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 07-29.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length: 66 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:cen:wpaper:07-29

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Web page: http://www.ces.census.gov

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Related research
Keywords: diversification organizational adjustment productivity entry liability of newness competitive advantage

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This page was last updated on 2008-7-20.


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