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A Re-Examination of Diversification and Firm Productivity

Posted: 15 Aug 2011  

Hsihui Chang

Drexel University

Guy Dinesh Fernando

SUNY Albany

Dhinu Srinivasan

University of Pittsburgh - Katz Graduate School of Business

Arindam Tripathy

University of Washington, Tacoma

Date Written: August 15, 2011

Abstract

The advantages and disadvantages of diversification have been debated ad nausem by academics as well as business professionals, with the current consensus appearing to be that diversification destroys value. The effect of overall diversification (with no further refinement as to whether such diversification is related or unrelated to the business) on productivity has been investigated to a limited extent with conflicting results. In this paper, we investigate the effects of different forms of diversification on productivity. We find that related diversification, which prior research has identified with superior performance, enhances firm productivity while unrelated diversification reduces firm productivity. Our paper offers further empirical evidence towards resolving the conflicting findings of prior research while providing practitioners with additional points to ponder when engaging in firm diversification.

Keywords: productivity, diversification, related, unrelated, data envelopment analysis

JEL Classification: C14, D21, D24

Suggested Citation

Chang, Hsihui and Fernando, Guy Dinesh and Srinivasan, Dhinu and Tripathy, Arindam, A Re-Examination of Diversification and Firm Productivity (August 15, 2011). AAA 2012 Management Accounting Section (MAS) Meeting Paper. Available at SSRN: https://ssrn.com/abstract=1909930 or http://dx.doi.org/10.2139/ssrn.1909930

Hsihui Chang

Drexel University ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States

Guy Dinesh Fernando (Contact Author)

SUNY Albany ( email )

1400 Washington Avenue
Building, Room 109
Albany, NY 12222
United States
518-442-4930 (Phone)

Dhinu Srinivasan

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States
412-648-1513 (Phone)
412-648-1693 (Fax)

Arindam Tripathy

University of Washington, Tacoma ( email )

1900 Commerce Street
Tacoma, WA 98402-3100
United States

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