Curvilinearity in the diversification-performance linkage: an examination of over three decades of research

Abstract

While an extensive literature examines the diversification‐performance relationship, little agreement exists concerning the nature of this relationship. Both theoretical and empirical disagreements abound. This study synthesizes findings from three decades of research to address major theoretical issues that remain open to debate. We derive three competing models from the literature and empirically assess these using meta‐analytic data drawn from 55 previously published studies. The results of our tests indicate that moderate levels of diversification yield higher levels of performance than either limited or extensive diversification. Thus, we provide support for the curvilinear model; that is, performance increases as firms shift from single‐business strategies to related diversification, but performance decreases as firms change from related diversification to unrelated diversification. The results also indicate major effects from variation in diversification and performance operationalizations. Copyright © 2000 John Wiley & Sons, Ltd.

Income diversification and risk for fishermen

“…Several authors suggest that there is a nonlinear relationship between risk and diversification (54,55), and a nonparametric fitting of the data suggests a concave relationship between CV and HHI (Fig. S1).…”

Cross-listing and the scope of the firm

“…While research on the scope of the firm started with a focus on product scope, more recent work has called for taking into account of both product scope and geographic scope of the firm (Delios & Beamish, 1999;Geringer, Tallman, & Olsen, 2000;Hitt, Hoskisson, & Kim, 1997;Hutzschenreuter & Grone, 2009;Kumar, 2009;Peng & Delios, 2006). While over three decades of research since Rumelt (1974) has shed considerable light on the scope of the firm (Palich, Cardinal, & Miller, 2000), no previous work has investigated the relationship between the scope of the firm and an important new phenomenon associated with globalization that we believe has significant ramifications on the scope of the firm-cross-listing.…”

The Effect of Business Diversification on a Firm’s Performance, Depending on Its Dynamic Capabilities and Market Dynamism

“…These results seem to support the curvilinear model: firm performance increases as firms move from a single business strategy to related diversification but decreases as firms shift from related diversification to unrelated diversification. In addition, much other empirical evidence supports the curvilinear model directly or indirectly (e.g., Singh & Montgomery, 1987;Markides, 1992;Lubatkin & Chatterjee, 1994;Markides & Williamson, 1994;Palich et al 2000). Figure 1 demonstrates the conceptualized model of the overall relationships among dynamic capabilities, diversification, and firm performance.…”

“…Palepu's (1985) study shows that firms with predominantly related diversification show significantly better profit growth than do firms with predominantly unrelated diversification. After synthesizing more than three decades of research using meta-analysis, Palich, Cardinal, and Miller (2000) suggest that moderate levels of diversification produce higher levels of performance than either single or unrelated diversification. These results seem to support the curvilinear model: firm performance increases as firms move from a single business strategy to related diversification but decreases as firms shift from related diversification to unrelated diversification.…”

“…Ng (2007) explains that "since weak ties promote the recombination of subjective experiences and provide access to unrelated resources, they change the discrete, indivisible, and heterogeneous nature of an organization's resource bundle; such changes in the resource bundle induce an organization with strong dynamic capabilities to seek the specialized growth of those unrelated resources and uses revealed by its weak ties" (Ng, 2007(Ng, : 1490. On the basis of these arguments, it is suggested that in a high-velocity market environment, the traditional curvilinear relationship between diversification and firm performance (Palich et al 2000) becomes weaker if a firm possesses high-level dynamic capabilities. Therefore, it is anticipated that a firm's dynamic capabilities may moderate the curvilinear relationship between diversification and firm performance under rapidly changing market conditions.…”