Corporate Diversification and Innovation Efficiency: An Empirical Study

Posted: 30 Aug 1999

See all articles by Laura B. Cardinal

Laura B. Cardinal

University of North Carolina (UNC) at Chapel Hill - Management-Strategy Area

Tim C. Opler

Credit Suisse First Boston

Date Written: June 1994

Abstract

Large diversified corporations have been widely criticized as being inefficient innovators with an orientation to maximizing short-term profits. This study investigates this criticism by testing whether the number of new products introduced per R&D dollar is lower among more diversified firms. We find no statistically discernible effect of diversification on innovative efficiency in a sample of 706 research-intensive firms in the 1981-1988 period. This is consistent with the argument that diversified organizations are rationally designed to minimize incentive and communication problems which may hinder their innovative efforts. In support of this argument, we find that diversified firms are more likely to have separate research and development centers which can be administered by managers whose compensation is tailored to maximize innovation.

JEL Classification: G3, G31

Suggested Citation

Cardinal, Laura B. and Opler, Tim C., Corporate Diversification and Innovation Efficiency: An Empirical Study (June 1994). Available at SSRN: https://ssrn.com/abstract=5461

Laura B. Cardinal

University of North Carolina (UNC) at Chapel Hill - Management-Strategy Area ( email )

Chapel Hill, NC 27599
United States
(919) 962-4514 (Phone)
(919) 962-4266/4425 (Fax)

Tim C. Opler (Contact Author)

Credit Suisse First Boston ( email )

11 Madison Avenue
Investment Banking Div., 23rd Flr
New York, NY 10010
United States
(212) 328-5313 (Phone)
(212) 448-3410 (Fax)

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