The effect of diversification on performance revisited: diversification discount, premium, or both?
AbstractIn this paper we argue conceptually and show empirically that the effect of diversification on performance is not homogeneous across industries, as previously assumed in the literature on diversification in strategy and finance. Some industries may be more friendly environments for diversified firms than for specialists, or vice versa. After replicating the main findings in finance and strategy, we show that the number of specialists in an industry is an important moderator of the diversification-performance relationship, which determines the existence of a diversification discount, a premium, or the curvilinear relationship frequently found in strategy research.
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Bibliographic InfoPaper provided by Instituto de Empresa, Area of Economic Environment in its series Working Papers Economia with number wp04-36.
Length: 20 pages
Date of creation: Dec 2004
Date of revision:
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Diversification; Empirical research; Performance;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-29 (All new papers)
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.:
- John R. Graham & Michael L. Lemmon & Jack G. Wolf, 2002. "Does Corporate Diversification Destroy Value?," Journal of Finance, American Finance Association, vol. 57(2), pages 695-720, 04.
- Antoinette Schoar, 2002. "Effects of Corporate Diversification on Productivity," Journal of Finance, American Finance Association, vol. 57(6), pages 2379-2403, December.
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"Explaining the diversification discount,"
IESE Research Papers
D/424, IESE Business School.
- Vojislav Maksimovic & Gordon Phillips, 2002. "Do Conglomerate Firms Allocate Resources Inefficiently Across Industries? Theory and Evidence," Journal of Finance, American Finance Association, vol. 57(2), pages 721-767, 04.
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