Diversification and Performance: Critical Review and Future Directions*

Datta, Deepak K.; Rajagopalan, Nandini; Rasheed, Abdul M. A.

doi:10.1111/j.1467-6486.1991.tb00767.x

Cited by 147 publications

(128 citation statements)

References 101 publications

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“…Empirically, the impact of diversification on firm performance is mixed (Datta et al, 1991;Hoskisson and Hitt, 1990). Some studies claim diversifying into related product markets produces higher returns than into unrelated markets, others propose that less diversified firms perform better than highly diversified firms (Christensen and Montgomery, 1981;Rumelt, 1974Rumelt, , 1982.…”

Section: Literature Discussionmentioning

confidence: 99%

“…Some studies claim diversifying into related product markets produces higher returns than into unrelated markets, others propose that less diversified firms perform better than highly diversified firms (Christensen and Montgomery, 1981;Rumelt, 1974Rumelt, , 1982. Some claim that the economies in integrating operations and core skills obtained in related diversification outweigh the costs of internal capital markets and smaller variances in sales generated by unrelated diversification (Datta et al, 1991). While Prahalad and Bettis (1986) claim that it is not product-market diversity but the strategic logic applied by managers that determines the effect of diversification on performance, Montgomery (1985) argues that it is not management conduct, but industry structure that governs firm performance.…”

Section: Literature Discussionmentioning

confidence: 99%

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Diversification Strategies and Firm Performance: A Sample Selection Approach

Santarelli

Tran

2013

SSRN Journal

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Abstract:This paper is based upon the assumption that firm profitability is determined by its degree of diversification which in turn is strongly related to the antecedent decision to carry out diversification activities. This calls for an empirical approach that permits the joint analysis of the three interrelated and consecutive stages of the overall diversification process: diversification decision, degree of diversification, and outcome of diversification. We apply parametric and semiparametric approaches to control for sample selection and endogeneity of diversification decision in both static and dynamic models. After controlling for industry fixed-effects, empirical evidence from firm-level data shows that diversification has a curvilinear effect on profitability: it improves firms' profit up to a point, after which a further increase in diversification is associated with declining performance. This implies that firms should consider optimal levels of product diversification when they expand product offerings beyond their core business. Other worth-noting findings include: (i) factors stimulating firms to diversify do not necessarily encourage them to extend their diversification strategy; (ii) firms which are endowed with highly skilled human capital are likely to successfully exploit diversification as an engine of growth; (iii) while industry performance does not influence profitability of firms, it impacts their diversification decision and degree.

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Section: Literature Discussionmentioning

confidence: 99%

Section: Literature Discussionmentioning

confidence: 99%

Diversification Strategies and Firm Performance: A Sample Selection Approach

Santarelli

Tran

2013

SSRN Journal

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“…5 Rumelt's typology includes the major categories: dominant business, related constrained, related linked and unrelated (conglomerate) businesses and has been applied in various studies (Baysinger and Hoskisson 1989;Bettis and Hall 1982;Montgomery and Singh 1987). 6 For example, Datta et al (1991) review the literature on diversification and find inconclusive evidence. Palich et al (2000) conduct a meta-study and establish an inverted U-curve, i.e.…”

Section: Literature Review and Research Frameworkmentioning

confidence: 99%

Do Synergies Exist in Related Acquisitions? A Meta-Analysis of Acquisition Studies

2008

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Mergers and acquisitions (M&A) aim to increase the wealth of shareholders of the acquiring company, in particular by creating synergies. It is often assumed that relatedness is a source of synergies. Our study distinguishes between business, cultural, technological, and size relatedness. It discusses the reasons why these different forms of relatedness can lead to an acquisition success and we conduct a meta-analysis of 67 prior M&A studies. Results indicate that positive effects can be expected under specific conditions only and have a limited overall impact on acquisition success. A moderator analysis finds that synergies stemming from relatedness depend on industry-, country-, and investor-characteristics.

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“…One of the other important considerations is that the impact of diversification on performance has been suggested to be influenced by the effect of certain contingency variables or moderators also (Datta et al, 1991;Kang, 2011 Further, plenty of research on diversification strategies' impact on performance was conducted in U.K. or U.S. context (Afza et al, 2008;Doaei et al, 2014). Perhaps, limited studies outside these contexts have been compounding the confusion about the relationship.…”

Section: A Comment On Methodologiesmentioning

confidence: 99%

“…All these studies negated linear discount model and linear premium model of diversification and suggested optimum point in diversification. This point could be considered as point of balance between diseconomies of scale and economies of scale (Datta, Rajagopalan, & Rasheed 1991).…”

Section: Non-linear Product/geographic Diversification Impactsmentioning

confidence: 99%

Significance of Studying Product Diversification, Geographic Diversification, and Their Interaction Impacts for Malaysian Companies: A Literature Review

Hilman¹

2015

ASS

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The objective of this study was to comprehensively and critically review research literature on impacts of product diversification strategy and geographic diversification strategy, conducted particularly in Asian context, and set forth guidelines for future studies. The study concludes that past research into impacts of product diversification and geographic diversification produced indecisive results. There has also been absence of any consensus on the interaction impacts of the two strategies on corporate performance. Although past research studied the topic using variety of methodologies but there has been limited research on the topic for Asian economies compared to Western ones. This is especially true about Malaysian public listed companies (PLCs) for which, particularly, studies regarding interaction impacts of the two strategies are extremely limited. For Malaysia, the challenging business scenario in future coupled with quite significant number of diversified companies warrant research into these areas. Future research could take up the objective of analysing and understanding individual and interaction impacts of product diversification and geographic diversification on corporate performance of Malaysian companies and contribute significantly to this research field. It could adopt new and advanced methodologies for measuring diversification strategies as well as employ several measures of corporate performance to produce comprehensive and robust results. Findings of such research would certainly be useful for practicing managers, particularly Malaysian strategists, and guide them in their decisions concerning diversification strategies and help them better manage their companies' performance.

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Diversification and Performance: Critical Review and Future Directions*

Cited by 147 publications

References 101 publications

Diversification Strategies and Firm Performance: A Sample Selection Approach

Diversification Strategies and Firm Performance: A Sample Selection Approach

Do Synergies Exist in Related Acquisitions? A Meta-Analysis of Acquisition Studies

Significance of Studying Product Diversification, Geographic Diversification, and Their Interaction Impacts for Malaysian Companies: A Literature Review

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