Faculty Scholarship 1994 - Present

Profitability and Curvilinearity: A Study of Product and International Diversification

The study of diversification and firm performance lies at the heart of the strategy literature (Dess, Gupta, Hennart, & Hill, 1995). Nevertheless, in spite of all the efforts of researchers to untangle the diversification-performance relationship milieu, there is still much confusion surrounding this vital issue. One potential source of confusion centers on the type of diversification being pursued. It has often been assumed that diversification is a one-dimensional construct that exists along a single continuum. However, research suggests that firms pursue diversification along product and market lines (Geringer, Beamish, & daCosta, 1989; Geringer, Tallman, & Olsen, 2000; Kim, Hwang, & Burgers, 1989). In addition, diversification-performance is usually tested under the hypothesis of linearity. Separating diversification into two major types, product and international (market), the present study employs an international sample (U.S., Japan, and EEC firms) in assessing the impact of diversification on firm performance. The assumption of linearity was also shown to be a factor in determining firm performance.