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Purpose: The authors study the valuation effect of corporate diversification in the initial phase of the COVID-19 pandemic in 2020 in Europe. Design/methodology/approach: Applying a cross-sectional regression model to a sample of public companies headquartered in the European Union, the authors investigate the existence of and the change in a diversification discount between 2018 and 2020. By applying the Excess Q methodology, the authors make an industry adjustment of diversified companies to measure the value effect of corporate diversification. Findings: The authors find an economically and statistically significant diversification discount that increases from an average Excess Q of −0.05 in 2019 to −0.10 in 2020. The diversified companies' inferior fundamental financial performance in 2020 accompanies the discount. The results deviate from those of previous research, which mostly show a decrease in the diversification discount in economic crises, and thereby, shed doubt on whether diversification provides insurance against pandemic-induced adverse value effects. Originality/value: The study distinguishes the role of corporate diversification during recessionary periods by establishing that the valuation effect of diversification depends on the nature of the crisis. The analysis incorporates criticism of previous studies concerning a biased methodology and uniform data source by applying the Excess Q methodology and using FactSet industry segment data. [ABSTRACT FROM AUTHOR]

We document a strong decline in corporate-diversification activity since the late 1970s, and we develop a dynamic model that explains this pattern, both qualitatively and quantitatively. The key feature of the model is that synergies endogenously decline with technological specialization, leading to fewer diversified firms in equilibrium. The model further predicts that segments inside a conglomerate should become more related over time, which is consistent with the data. Finally, the calibrated model also matches other empirical magnitudes well: output growth rate, market-to-book ratios, diversification discount, frequency and returns of diversifying mergers, and frequency of refocusing activity. [ABSTRACT FROM AUTHOR]

This study analyzed the effect of industrial and international diversification on the profitability and operational risk of Brazilian companies. The sample comprised 210 publicly traded Brazilian companies, who trade shares on the B3 stock exchange. The results of the study showed that industrially diversified companies both reduce operational risk and increase profitability in terms of return on assets, while companies that are internationally diversified reduce their profitability. As well, the companies that diversify both industrially and internationally, see increasedoperational risk. This study is relevant to the investigation of the relationship of industrial and international diversification in companies' operating results, as it indicates that, in the context of Brazil, industrial diversification tends to improve operating results, with an increase in profitability and a reduction in operating risk. [ABSTRACT FROM AUTHOR]

This paper studies the Mughal cuisine. Initially demarcating what can be considered a part of Mughal cuisine then expanding on its diversity. Finally, the paper will trace the evolution of cuisine in modern times. The study will include the food and ingredients available in the empire, dishes served to the elites, and eventually the 21st century rendition of the cuisine. [ABSTRACT FROM AUTHOR]

Research Summary: We consider the role of individual‐level diversification as a mechanism through which skilled researchers engage in successful exploration—recognizing and integrating new knowledge external to one's domains of expertise. To approach an ideal experiment, we (a) employ a matching procedure and (b) exploit the unexpected adoption of Microsoft Kinect as a motion‐sensing technology in research. We evaluate the impact of Kinect and its embodiment of new knowledge on a set of ability‐matched, diversity‐varying researchers without prior experience in motion‐sensing and find that diversified researchers explore more successfully than their more specialized peers. We also examine the role of personal preferences and professional incentives as antecedents of diversification and find that culture, age and intellectual freedom are positively associated with the propensity to diversify successfully. Managerial Summary: Organizations where R&D is core to driving competitive advantage face important tradeoffs when hiring researchers. Specifically, diverse combinations of knowledge generate the most impactful discoveries. Yet, coordinating such combinations increasingly requires larger teams as knowledge accumulation causes researchers to specialize in narrower areas. How should organizations achieve the best balance? We argue and show evidence that diversified researchers, individuals routinely criticized for their lack of knowledge depth, are more likely than specialized researchers of similar ability to integrate new knowledge from beyond their domains of expertise to create impactful innovations. Therefore, organizations aiming to create competitive advantage by pushing the boundaries of knowledge should carefully consider the nuanced tradeoffs between specialized and diversified researchers when strategizing about hiring the optimal types of expertise. [ABSTRACT FROM AUTHOR]

Few major corporations are single business entities; rather, they are organizations that target many product-market combinations. Although academia has shown great interest in diversification and mergers and acquisitions, the management of multi-business portfolios, also known as corporate portfolio management (CPM), has received considerably less attention since the 1980s. This raises the question of why. Reviewing the scholarly literature on CPM we investigate the reasons for this disinterest and suggest a future research agenda for management scholars in this important domain. [ABSTRACT FROM AUTHOR]

We examine the role of multibusiness corporations in the development of young industries. We propose and find that established firms diversifying into a new industry that owes its birth to a disruptive technological change give birth to corporate children that are both weaker survivors than freestanding start-ups and stronger legitimators of the industry as a whole. Thus, corporate parents promote the survival of other organizations in this type of young industry while hindering the survival of their own offspring. Using event history models, we examine this paradox in the U.S. personal computer industry from 1975 through 1994. [ABSTRACT FROM AUTHOR]

In this study, we show that the effect of diversification on performance is not homogeneous across industries and explore analytically and empirically the implications of this finding for the diversification literature. Diversified firms perform better in industries with a small number of nondiversified competitors or, equivalently, when specialized firms have a small combined market share, but worse as the presence of specialized firms increases in the industries in which they compete. The results are robust to the use of methods that alleviate the self-selection problem and call for a reassessment of the diversification–performance relationship. [ABSTRACT FROM AUTHOR]

We examine the impact of diversification on performance for firms operating in different institutional environments during a relatively stable period and during a major economy-wide shock. We locate our study in six Asian countries at different levels of institutional development. Results indicate that diversification negatively impacts performance in more developed institutional environments while improving performance only in the least developed environments. Even in the least developed institutional environments, diversification offers limited benefits when an economy-wide shock strikes. Though successful diversifiers are sometimes affiliated with business groups, diversification is associated with poorer performance for both affiliated firms and independent firms. In sum, we find that the outcomes of diversification are influenced by institutional environments, economic stability and affiliation with business groups. Copyright © 2007 John Wiley & Sons, Ltd. [ABSTRACT FROM AUTHOR]

We argue that the risk associated with the value of a firm's core resources has an impact on employee decisions to make firm-specific investments, independent of the threat of opportunism that might exist in a particular exchange. We further explore mechanisms firms may adopt to mitigate the employee incentive problem stemming from the risk associated with core resource value. These arguments shed new light on resource-based theories of corporate diversification. [ABSTRACT FROM AUTHOR]

Since the mid-1980s U.S. domestic firms have faced significant increases in foreign-based (i.e., import) competition as reductions in barriers to international commerce have resulted in markets and industries becoming increasingly global. Despite the growing and widespread importance of foreign-based competition, the influence that such competition may exert on corporate diversification strategy is a question largely overlooked in the strategic management literature. This paper examines the impact of foreign-based competition in a firm's core business on both the level and nature of a firm's diversification strategy at the corporate level in a panel dataset of U.S. firms over the period 1985-94. Our findings provide the first evidence that increased foreign-based competition is indeed a statistically significant factor explaining both the reduced business-level diversity and the increased strategic focus of U.S. firms that has been widely perceived over the past two decades. [ABSTRACT FROM AUTHOR]

Strategy research has a long-standing interest in the performance consequences of corporate diversification. In theory, resource sharing should yield economic benefits in related multi-business firms, but the extensive empirical research remains equivocal. To explore this paradox, this paper examines the process of implementing a related diversification strategy. Working from existing theory, a formal model is constructed that describes the process and performance implications of a related diversification move. The model is analyzed using computer simulation, and the analysis suggests that successful diversification strategies require managerial policies that maintain organization slack. In the absence of such policies, related diversification can negatively impact firm performance even when substantial synergy opportunities exist. The analysis also demonstrates, contrary to existing theory, that diversification strategies based on a very high degree of relatedness can lead to lower performance than less related strategies in some circumstances. Counter-intuitively, extracting potential synergies may require additional investment in shared resources. [ABSTRACT FROM AUTHOR]

This paper examines the effect of diversification upon intra-industry performance. We propose that intra-industry diversification promises three sets of benefits, which, separately and in combination, provide firms with a competitive advantage: synergies arising from economies of scope: premiums from mutual forbearance enabled by multi-market competition: and efficiencies derived from market structuration. The additive and integrative effects of the first two have not been explored. The benefits of market structuration remain untheorized and thus untested. The test of our theoretical model in the Canadian general insurance industry indicates that mutual forbearance provides advantage under specified conditions, that market structuration also provides advantages, but that diversification per se does not. [ABSTRACT FROM AUTHOR]

Within the diversification literature the concept of corporate coherence has been referred to as the ability of the firm to generate and explore synergies of various types. However, the empirical studies have insofar provided only approaches taking explicitly into account the product/market side of the phenomenon. The present paper operationalizes the concept of corporate coherence as a dynamic interconnectedness between the company's technological competencies and its downstream activities. It also provides some further empirical evidence on the widely discussed relationship between corporate diversification and performance. Specifically, it offers some (albeit rather weak) evidence that economic performance is positively influenced not by the degree of diversification per se, but by the ability of the company to increase its corporate coherence. [ABSTRACT FROM AUTHOR]

Conceptualizing the keiretsu as a power-dependence system, we propose that benefits accruing from keiretsu affiliation differ across member firms, depending on their power in (or dependence on) the keiretsu. By integrating power with governance and internal market perspectives on group affiliation, we develop and find general support for the hypotheses that powerful keiretsu member firms are able to place more emphasis on growth in pursuing product and international diversification, whereas less powerful keiretsu member firms are subject to strong monitoring and emphasize profitability. These findings provide support to the study's proposition that power-dependence relationships in a keiretsu influence member firms' appropriation of group affiliation benefits in pursuing diversification strategies. [ABSTRACT FROM AUTHOR]

We study a sample of diversified firms that alter their organizational structure by divesting a business segment. These firms experience a reduction in the diversification discount after the divestiture. We show that the efficiency of segment investment increases substantially following the divestiture and that this improvement is associated with a decrease in the diversification discount. Our results support the corporate focus and financing hypotheses for corporate divestitures. We demonstrate that inefficient investment is partly responsible for the diversification discount and show that asset sales lead to an improvement in the efficiency of investment for remaining divisions. [ABSTRACT FROM AUTHOR]

Capital budgeting in multidivisional firms depends on the external assessment of the whole firm, as well as on headquarters' assessment of the divisions. While corporate headquarters may create value by directly monitoring divisions, the external assessment of the firm is a public good for division managers who, consequently, are tempted to free ride. As the number of divisions increases, the free-rider problem is aggravated, and internal capital markets substitute for external capital markets in the provision of managerial incentives. The analysis relates the value of diversification to characteristics of the firm, the industry, and the capital market. [ABSTRACT FROM AUTHOR]

Diversified firms have different values from comparable portfolios of single-segment firms. These value differences must be due to differences in either future cash flows or future returns. Expected security returns on diversified firms vary systematically with relative value. Discount firms have significantly higher subsequent returns than premium firms. Slightly more than half of the cross-sectional variation in excess values is due to variation in expected future cash flows, with the remainder due to variation in expected future returns and to covariation between cash flows and returns. [ABSTRACT FROM AUTHOR]

We investigate the impact of contact between organizations in multiple geographic markets, focusing on two competitive behaviors: growth in current markets and entry into new markets. Drawing on sociological and economic theories, we propose that the extent of multimarket contact determines the level of competition experienced by a focal organization and therefore influences its growth and market entry. We also propose that market structure, specifically the extent to which markets are dominated by a few large firms, influences competition and therefore influences growth and market entry. Finally, we propose that market structure accentuates multimarket competitive dynamics, as mutual forbearance is more pronounced in markets dominated by a few large firms. Analysis of growth and market entry by a mixed population of multi- and single-market firms in the California savings and loan industry generally supports our model and shows that multipoint competition affects all rivals, multi- and single-market firms alike. [ABSTRACT FROM AUTHOR]

I critique and extend niche width theory to provide an explanatory framework for the success of multiunit firms in single industries. A greater emphasis on spatial variation in organizational environments allows the fitness strategy of polymorphism to be developed more adequately and multiunit expressions of the specialist and generalist strategies to be added to the theory. I develop a set of testable propositions regarding the specific environmental conditions for the success of each strategy and consider research and managerial implications. [ABSTRACT FROM AUTHOR]

Abstract: This study investigates the relationship between corporate diversification, institutional investors and internal control quality. Using a sample of firms disclosing internal control information from 1999 to 2011, the results show that corporate diversification is positively associated with the likelihood of internal control weakness. Moreover, this relationship is stronger (weaker) when firms have higher transient (dedicated) institutional ownership, indicating that transient (dedicated) institutional investors increase (mitigates) the internal control problems arising from diversification. This study contributes to the literature by providing evidence on the role of corporate diversification in the quality of internal control. [ABSTRACT FROM AUTHOR]

By examining the independent and joint effects of the skill and physical bases of relatedness, this study develops a multidimensional view of relatedness in diversification. The paper compares the ways the two bases identify relatedness, and examines empirically the relationship between relatedness and performance for a sample of 158 large diversified manufacturing firms. Each base of relatedness alone had no significant effect on financial performance. However, when the two approaches were combined, there was a strong positive effect on most indicators of performance. The findings demonstrate how different bases of relatedness complement and extend one another, and they clarify findings of previous studies that used a single base of relatedness. [ABSTRACT FROM AUTHOR]

Despite nearly 30 years of academic research on the benefits of related diversification, there is still considerable disagreement about precisely how and when diversification can be used to build long-run competitive advantage. In this paper we argue that the disagreement exists for two main reasons: (a) the traditional way of measuring relatedness between two businesses is incomplete because it ignores the 'strategic importance' and similarity of the underlying assets residing in these businesses, and (b) the way researchers have traditionally thought of relatedness is limited, primarily because it has tended to equate the benefits of relatedness with the static exploitation of economies of scope (asset amortization), thus ignoring the main contribution of related diversification to long-run, competitive advantage; namely the potential for the firm to expand its stock of strategic assets and create new ones more rapidly and at lower cost than rivals who are not diversified across related businesses. An empirical test supports our view that 'strategic' relatedness is superior to market relatedness in predicting when related diversifiers outperform unrelated ones. [ABSTRACT FROM AUTHOR]

Actual, not potential, relatedness determines the results of diversification strategies. An external examination of a firm's businesses, products, markets and technologies permits an assessment of potential relatedness among its various businesses. Potential relatedness is, however, often not realized. Also, relatedness may be externally invisible. Hence, actual relatedness may diverge from externally measured potential relatedness. This paper provides evidence suggesting that measures of corporate diversification strategy based on internal data differ significantly from those based on externally available data. [ABSTRACT FROM AUTHOR]

This study examines the impact of diversification strategy on risk and return in diversified firms. Following an assessment of previous research on strategic risk, relationships between risk, return, and diversification strategy are hypothesized. Regression analysis shows that differences in risk-return performance among diversified firms are more closely associated with structural factors associated with markets and businesses than with the particular diversification strategy chosen. Returns also influence the choice of diversification strategies which, in turn, do not get rewarded with higher profits. A curvilinear risk-return relationship is also observed which is consistent with previous theoretical suggestions. Implications for the strategic management of risk are then drawn. [ABSTRACT FROM AUTHOR]

The paper addresses the relationship between the diversification strategy and systematic risk (beta). Beta values are examined for six diversification categories, and it is found that betas for unrelated diversifiers are significantly higher than those of other firms. Possible contributions to this difference, including market power, capital structure, and capital intensity are explored. [ABSTRACT FROM AUTHOR]

Prior research by Berg and Pitts has shown that there is a difference in the diversification strategies followed by major corporations. This strategy depends upon the type of organizational structure at the corporate level. This paper extends research on diversification strategy by testing the hypotheses that the skills and competence of the incumbent chief executive officer of a major firm are associated with its diversification strategy. Using empirical data spanning the years 1965-1980 for fifty-three major U.S. firms that have diversified and grown, it is shown that the background and prior experience of the incumbent CEO of each firm is significantly associated with the diversification strategy of a firm. This has implications for boards of directors in their search for and selection of top level corporate executives, as well as implications for managers in search of executive jobs. [ABSTRACT FROM AUTHOR]

This work is original research which is based on data gathered from annual reports and accounts. It covers some 267 businesses which had the largest annual turnovers for manufacturing companies, within Britain, in 1971 and were still in existence in 1979. The data have been subjected to analysis to reveal preferred product-market postures, movements in posture, effects of annual turnover size on strategies, and the effects of being located within specific industries. In comparison with the work of D. F. Channon for the preceding twenty years it can be seen that, on the whole, the trend towards diversification has continued throughout the broad spectrum of British Industry. [ABSTRACT FROM AUTHOR]

The economic theory of barriers to entry is integrated with the corporate strategy concept of relatedness, to develop a model of the choice between internal development and acquisition in diversification entry into new markets. The model is tested on original data collected for this study from PIMS Program participants. These original data cover the parent company characteristics, entry, strategy, and entry outcome for 59 entrants into 31 markets. These entry-related data are merged with existing PIMS data on the structure of the entered markets and their incumbents. Results of binary regression analysis show that the choice between the two entry modes is well explained by measures of barriers and relatedness. Higher barriers are more likely to be associated with acquisition entry. Greater relatedness is more likely to be associated with direct entry. [ABSTRACT FROM AUTHOR]

Prior work has shown an association between diversification strategy and profitability. This paper replicates that association using more recent and complete data and goes on to investigate the sources of the association. Theoretical arguments are advanced which predict the association which will remain once the effects of varying industry profitability are removed. Empirical tests verify this prediction and permit the discrimination between the effects of industry and diversification strategy on profitability. [ABSTRACT FROM AUTHOR]

There has been considerable debate over the viability of the unrelated product, or conglomerate strategy. The financial arguments for and against its viability are well known. However, the administrative imperatives for its successful implementation have not been well investigated. The paper argues that there are a number of critical administrative contingencies for successful implementations of this strategy which only a few unrelated product firms have recognized. These concern policies dealing with acquisition, divestment, portfolio structure, management, and organization. The paper discusses each in turn, describing specific instances of success and failure to illustrate the major points of the argument. [ABSTRACT FROM AUTHOR]

This paper examines the strategic and structural development of the 100 largest Japanese manufacturing enterprises between 1950 and 1970. Unlike other studies of Japanese business, the author focuses not only on some of the key differences between Western and Japanese firms, such as the emergence of widely diversified industrial groups, but also on similarities. Using the model developed originally by Channon, the author traces the development of diversification in Japan and the emergence of the multinational forms of organization, which, as in the West, prove to be the major strategic and structural forms in Japan by 1970. [ABSTRACT FROM AUTHOR]

The current trend toward corporate focus reverses the diversification trend of the late 1960s and early 1970s. This article examines the value of diversification when many corporations started to diversify. I find no evidence that diversified companies were valued at a premium over single segment firms during the 1960s and 1970s. On the contrary, there was a large diversification discount during the 1960s, but this discount declined during the 1970s. Insider ownership was negatively related to diversification during the 1960s, but when the diversification discount declined, firms with high insider ownership were the first to diversify. [ABSTRACT FROM AUTHOR]

We examine whether the value loss from diversification affects takeover and breakup probabilities. We estimate diversification's value effect by imputing stand-alone values for individual business segments and find that firms with greater value losses are more likely to be taken over. Moreover, those acquired firms whose losses are greatest are most likely to be bought by LBO associations, which frequently break up their targets. For a subsample of large diversified targets: (1) higher value losses increase the extent of post-takeover bustup; and (2) post-takeover bustup generally results in divested divisions being operated as part of a focused, stand-alone firm. [ABSTRACT FROM AUTHOR]

We simultaneously address three basic issues regarding the corporation: the optimal scope of operation, the optimal financial structure, and the relationship between these two. The starting point is that financial structure serves as a bonding device on the managers' self-interest behavior. The effectiveness of this bonding depends on the distribution of the firm's future cash flow, which in turn depends on the firm's scope. Our theory also links the firm's investment decisions to its operation scope. As empirical implications, the theory reconciles the failure of the 1960s U.S. conglomerates with the success of the Japanese Keiretsu. [ABSTRACT FROM AUTHOR]

This paper reports findings of a field study of the internal corporate venturing (ICV) process in a diversified major firm. It presents a grounded process model of the interlocking key activities of managers at different levels in the organization, which constitutes the strategic process by which new ventures take shape. Successful ICV efforts are shown to depend on the availability of autonomous entrepreneurial activity on the part of operational level participants, on the ability of middle-level managers to conceptualize the strategic implications of these initiatives in more general system terms, and on the capacity of top management to allow viable entrepreneurial initiatives to change the corporate strategy. [ABSTRACT FROM AUTHOR]

Theory suggests and results show that firm performance is initially positive but eventually levels off and becomes negative as international diversification increases. Product diversification moderates the relationship between international diversification and performance. International diversification is negatively related to performance in month- versified firms, positively related in highly product-diversified firms, and curvilinearly related in moderately product-diversified firms. International diversification is also positively related to R&D intensity, but the interaction effects with product diversification are negative. The results of this study provide evidence of the importance of international diversification for competitive advantage but also suggest the complexities of implementing it to achieve these advantages in product-diversified firms. [ABSTRACT FROM AUTHOR]

We argue that related diversification enhances performance only when it allows a business to obtain preferential access to strategic assets--those that are valuable, rare, imperfectly tradable, and costly to imitate. As the advantage this access affords will decay as a result of asset erosion and imitation by single-business rivals, in the long run only competences that enable a firm to build new strategic assets more quickly and efficiently than competitors will allow it to sustain supernormal profits. Both short- and long-run advantages are conditional, however, on organizational structures that allow the firm's divisions to share existing strategic assets and to transfer the competence to build new ones efficiently. [ABSTRACT FROM AUTHOR]

This study examined the relationships among international diversity, product diversity, and firm performance. For a sample of large American industrial multinational enterprises (MNEs), it showed a consistent quadratic relationship between product diversification and MNE performance but minimal performance differences across different measures of international diversity. Analysis of the interactions of international diversity and product diversity indicates a weak effect from increasing internationalization on the performance effect of product diversity. [ABSTRACT FROM AUTHOR]

Employing concepts of lateral and longitudinal learning, we examined the dissolution of 462 expansions of Dutch firms, both acquisitions and new ventures. We interpreted the endurance of an expansion as reflecting success. Results show that expansions were more persistent when related to a firm's core skills, fully owned, and the result of acquisition rather than internal development. Expansions were also likely to last longer if a firm's prior diversification activity level was high. [ABSTRACT FROM AUTHOR]

This study investigated the convergent validity of Rumelt's categorical classification of types of business diversification across different data sources and variations from Rumelt's method. The study also assessed convergent and predictive validity of Rumelt's classification and continuous measures of diversification. It also investigates the ability of continuous measures to discriminate between Rumelt's categories. The results suggest weak convergent validity for Rumelt's measures but good discriminating power of continuous measures to discriminate between Rumelt's measures. Finally, the measures demonstrate predictive validity with specific performance criteria. [ABSTRACT FROM AUTHOR]

During the 1980s, many diversified firms reduced their diversification by refocusing. This study examined whether this refocusing created market value for the companies involved. It is shown that refocusing announcements are associated with significant, positive abnormal returns, which implies that firm diversification levels prior to refocusing were higher than optimal. [ABSTRACT FROM AUTHOR]

Focusing on business units (SBUs) in diversified firms, this study investigated the relationships among control systems, resource sharing, and competitive strategies and their interactive effects on SBU performance. Empirical results indicate that output control and high resource sharing are associated with higher effectiveness for a low-cost strategy and behavior control and high resource sharing are associated with higher effectiveness for a differentiation strategy. [ABSTRACT FROM AUTHOR]

This study provides empirical evidence that choice of diversification strategy systematically affects R&D intensity in large multiproduct firms. Research and development intensity in dominant-business firms was found to be significantly higher than in related- and unrelated- business firms and was also higher in related-business firms than in unrelated-business firms. These findings suggest the need to examine the implications of different types of corporate diversification strategy on the management of corporate-strategic-business-unit relations in large multiproduct corporations. [ABSTRACT FROM AUTHOR]

This study reexamined the performance outcome of diversification strategies by combining the advantages of security-market-based measures and Rumelt's classification scheme. The findings underscore the popular, though weakly supported, belief that controlled diversity is associated with the highest performance. Specifically, firms that diversified in a constrained manner demonstrated significantly lower levels of systematic risk and significantly higher levels of shareholder returns than firms employing other strategies. [ABSTRACT FROM AUTHOR]

The article focuses on a study which explored diversification, financial performance and other issues involved in corporate strategy. A discussion is presented about corporate management and process of conglomeration and the incorporation regulations set by the United States Securities and Exchange Commission. The authors present a market analysis of corporate performance and compare the profitability of diversified companies versus nondiversified companies. Details related to the study's methods are mentioned.

The article discusses a study which examines the linkage between diversity and performance using a two-dimensional conceptualization of diversity in business enterprises. Methods for measuring diversity are considered. The 1974 work of Richard P. Rumelt is cited for pioneering research into the subject. Two patterns of diversification - narrow spectrum diversification (NSD) and broad spectrum diversification (BSD) are defined according to industry classifications. A sample of U.S. firms are analyzed, revealing systematic differences in risk across several categories of diversification.

In this article the authors discuss research they conducted on the diversification strategies used by multibusiness corporations. Two of the strategies that they identify include internal diversification that relies on the development of products or services and external diversification that relies on the acquisition of other firms. They hypothesized that multibusiness firms diversify into new business by using one of these two methods while avoiding mixing of the two strategies and that corporations that do mix strategies experience lower economic returns than corporations that avoid this method.

This study examines relationships among diversification, market structure, and firm performance. Theory and empirical data are offered that argue that highly diversified firms have lower market power in their respective markets than do less diversified firms. This view is contrasted with the traditional market power theory that emphasizes the general rather than the specific market power of diversified firms. [ABSTRACT FROM AUTHOR]

Two approaches to the measurement of firm diversification are compared: (1) continuous SIC-based product count measures and (2) categorical measures as popularized by Rumelt. The measures are found to be more similar than previous research has suggested, although each appears to have advantages for particular research topics and methodological approaches. [ABSTRACT FROM AUTHOR]