Does Business Diversification Affect Performance?

Abstract

* In spite of the trend toward diversification during the past decade, relatively little is known about the relationship between financial performance and the extent to which a firm diversifies. This study relates several measures of financial performance to the degree of relatedness of a firm's operations. The empirical question of whether shareholder value is increased through increasing amounts of diversification is investigated. The study concludes that firms diversifying into unrelated areas have been able to generate superior performance over those with predominantly related businesses.

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