Competition from Specialized Firms and the Diversification–Performance Linkage

Juan Santaló · Manuel Becerra

185 citations0/0 files storedThe Journal of Finance

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Abstract

ABSTRACT 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.

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References

1995Firms, Contracts, and Financial Structure 1990Managerial discretion and optimal financing policies 1995Diversification's effect on firm value 1994Tobin's q, Corporate Diversification, and Firm Performance 2002Information Production and Capital Allocation: Decentralized versus Hierarchical Firms 1982Towards an economic theory of the multiproduct firm 1990Do Managerial Objectives Drive Bad Acquisitions?1980Economies of scope and the scope of the enterprise

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