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Competition from Specialized Firms and the Diversification–Performance Linkage
Author(s) -
SANTALO JUAN,
BECERRA MANUEL
Publication year - 2008
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2008.01333.x
Subject(s) - diversification (marketing strategy) , competitor analysis , homogeneous , industrial organization , business , linkage (software) , competition (biology) , market share , marketing , ecology , biology , gene , biochemistry , physics , thermodynamics
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.