City Research Online

Abstract

We review the literature on the diversification-performance (D-P) relationship to a) propose that the time is ripe for a renewed attack on understanding the relationship between diversification and firm performance, and b) outline a new approach to attacking the question. Our paper makes four main contributions. First, through a review of the literature we establish the inherent complexities in the D-P relationship and the methodological challenges confronted by the literature in reaching its current conclusion of a non-linear relationship between diversification and performance. Second, we argue that to better guide managers the literature needs to develop along a complementary path – whereas past research has often focused on answering the big question of does diversification affect firm performance, this second path would focus more on identifying the precise micro-mechanisms through which diversification adds or subtracts value. Third, we outline a new approach to the investigation of this topic, based on (a) identifying the precise underlying mechanisms through which diversification affects performance; (b) identifying performance outcomes that are “proximate” to the mechanism that the researcher is studying, and (c) identifying an appropriate research design that can enable a causal claim. Finally, we outline a set of directions for future research.

Publication Type:	Article
Additional Information:	This is an Accepted Manuscript of an article published by Taylor & Francis in Academy of Management Annals on 18/01/2017, available online: http://www.tandfonline.com/10.5465/annals.2014.0079
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Departments:	Bayes Business School > Management
SWORD Depositor:	Symplectic Administrator

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