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Firms' technological resources and the performance effects of diversification: a longitudinal study
Author(s) -
Miller Douglas J.
Publication year - 2004
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.411
Subject(s) - diversification (marketing strategy) , business , industrial organization , longitudinal sample , agency (philosophy) , sample (material) , longitudinal data , principal–agent problem , economics , monetary economics , marketing , finance , corporate governance , psychology , epistemology , chromatography , demography , sociology , developmental psychology , philosophy , chemistry
Abstract While agency theory claims managerial self‐interest creates a diversification discount, strategic theory explains that firms with certain kinds of resources should diversify. Longitudinal data on 227 firms that diversify between 1980 and 1992 reveal that the sample firms invest less in R&D and have greater breadth of technology (based on patent citations) than their industry peers prior to the diversification event. Also, acquiring firms may appear to have lower performance because of accounting conventions and because firms that use internal growth rather than acquisition pursue less extensive diversification. These findings help explain how diversification and financial performance are endogenous. Copyright © 2004 John Wiley & Sons, Ltd.