An Investigation into the Relationship between Corporate Diversification and the Performance of Firms

Essay by ilovephilUniversity, Master'sA-, February 2005

download word file, 24 pages 3.0

Downloaded 374 times



1.1 Background of the Study

Diversification has been an essential basis for the growth and survival of firms in the last half of the twentieth century, due to the vulnerability of the single-business firms to the fast and unexpected changes in the environment (Ansoff, 1965; Penrose, 1995). As such, corporate diversification has been one of the most one of the most widely researched (Johnson and Scholes, 2002, p304). Moreover, within the diversification research, most attention goes to the investigation of the relationship between corporate diversification and the performance of firms.

"It should therefore come as no surprise that the relationship between diversification and performance has been one of the most extensively researched areas in the discipline of industrial organization, strategic management and finance" (Datta e.a., 1991, p529).

Rumelt's 1974 study has been the start of a huge stream of literature exploiting the relationship between corporate diversification and performance of firms.

Nevertheless, various attempts to demonstrate the effects of diversification on performance are inconclusive (Johnson and Scholes, 2002, p305). This lack of a clear answer in the diversification research motivates the present study.

The purpose of this study is to illustrate a map regarding the mainstream research on diversification-performance relation ever since Rumelt's seminal study, to identify how far Rumelt's study match into subsequent empirical studies, to identify the major drawbacks of previous studies, and further to provide tentative suggestions for future research.

1.2 Research Methods

This study is conducted as an extended literature review. The aim is to output a new synthesis of different insights into previous research on the relationship between corporate diversification and performance of firms. Thus an extended literature review is basically sufficient. The challenge is to choose good publications and articles dealt with the topic of this dissertation (Jankowicz, 2002).

1.3 Dissertation Structure...