This paper addresses the questions of the effects of diversification strategies on firms' profitability. Empirical analyses do not seem to confirm the hypothesis that diversification is the optimal response to the presence of synergies and hence generates higher profits. It is shown that this might be either the effect of distortions due to the omission of some other factors which affect the efficiency of firms, or the result of selection bias. Diversified firms, in fact, may be the less efficient firms, just able to survive due to the synergies they achieve diversifying.
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Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Economics of Industry Papers with number
17.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Panzar, John C & Willig, Robert D, 1981.
"Economies of Scope,"
American Economic Review,
American Economic Association, vol. 71(2), pages 268-72, May.
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