Capturing Relatedness: Comprehensive Measures Based on Secondary Data
British Journal of Management, Forthcoming
39 Pages Posted: 4 Jun 2015
Date Written: June 3, 2015
In this article we present new measures of technological and customer side relatedness constructed from widely available secondary data. Relatedness is a concept central to predicting the existence and nature of a relationship between corporate diversification and firm performance. Yet, finding appropriate measures has been an ongoing struggle. The widely used SIC-based entropy measure has low construct validity, and survey based measures are hard to replicate across firms and industries and over time. The measures we develop significantly outperform established measures in explaining variation in firm performance across firms and over time, and both sources of relatedness are found to be independent and significant explanations of firm performance.
Keywords: Diversification, Relatedness, Economies of Scope
JEL Classification: C81, D23, G11
Suggested Citation: Suggested Citation