Diversification and Synergies: Effects on Profitability

34 Pages Posted: 11 Jul 2008

Date Written: March 1997

Abstract

This paper addresses the questions of the effects of diversification strategies on firms' profitability. Empirical analyses do not seem to confirm the hypothesis that diversification is the optimal response to the presence of synergies and hence generates higher profits. It is shown that this might be either the effect of distortions due to the omission of some other factors which affect the efficiency of firms, or the result of selection bias. Diversified firms, in fact, may be the less efficient firms, just able to survive due to the synergies they achieve diversifying.

Suggested Citation

Bianco, Magda, Diversification and Synergies: Effects on Profitability (March 1997). LSE STICERD Research Paper No. EI17. Available at SSRN: https://ssrn.com/abstract=1158296

Magda Bianco (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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