Learning Not to Diversify: The Transformation of Graduate Business Education and the Decline of Diversifying Acquisitions

Forthcoming in Administrative Science Quarterly

67 Pages Posted: 24 Mar 2018

See all articles by Jiwook Jung

Jiwook Jung

University of Illinois at Urbana-Champaign School of Labor and Employment Relations

Taekjin Shin

San Diego State University - Management

Date Written: January 24, 2018

Abstract

Once a preferred strategy, diversification has gradually been deinstitutionalized in the United States over the past several decades. We argue that changes that occurred in a closely related domain — graduate business education — are important in understanding variation in de-diversification across firms. Building on a historical account of the transformation of business education, we explain how the rise of financial economics and agency-theoretic logic in business education changed students’ views about diversification. Nearly twenty years later, these MBA graduates rose to top decision-making positions and put a brake on diversification. Using data on CEOs who ran large U.S. corporations from 1985 to 2015, we show that CEOs who earned an MBA before the 1970s actively pursued diversification, whereas the next cohort of CEOs, who had been exposed to agency-theoretic logic in financial economics, refrained from it. Furthermore, we demonstrate that the degree of managerial discretion moderated the effect of the CEO’s MBA education. Our study, therefore, demonstrates that institutional change in one domain (i.e., business education) contributed to change in another domain (i.e., corporate diversification), albeit with a considerable time lag.

Keywords: Institutional Change, Corporate Diversification, Graduate Business Education, Managerial Cognition

JEL Classification: G34, L25, M12

Suggested Citation

Jung, Jiwook and Shin, Taekjin, Learning Not to Diversify: The Transformation of Graduate Business Education and the Decline of Diversifying Acquisitions (January 24, 2018). Forthcoming in Administrative Science Quarterly. Available at SSRN: https://ssrn.com/abstract=3148266

Jiwook Jung

University of Illinois at Urbana-Champaign School of Labor and Employment Relations ( email )

601 E John St
Champaign, IL 61820
United States

Taekjin Shin (Contact Author)

San Diego State University - Management ( email )

United States

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