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Using simulated mergers to evaluate corporate diversification strategies
Author(s) -
Silhan Peter A.,
Thomas Howard
Publication year - 1986
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.4250070604
Subject(s) - diversification (marketing strategy) , business , equity (law) , mergers and acquisitions , strategic management , risk–return spectrum , strategic fit , financial economics , industrial organization , econometrics , economics , finance , marketing , portfolio , political science , law
This study suggests that simulated mergers can be used to help evaluate the effects of diversification on corporate performance. The results, which are consistent with a risk‐reduction motive for conglomerate diversification, imply that conglomerate strategies focused on fewer and larger units may be advantageous in terms of certain measures of risk and return. Forecast error is used here to measure strategic risk, and return on equity is used to measure return.