|M.Sc Student||Zahavi Talli|
|Subject||Intra-Industry Diversification and Firm Performance|
|Department||Department of Industrial Engineering and Management||Supervisor||Professor Dovev Lavie|
|Full Thesis text|
The strategic management literature has extensively examined the notion of diversification, i.e., a firm’s expansion to new businesses beyond its traditional business. This fertile research has focused on the motivation for diversification as well as on its performance implications. However, little is known about performance heterogeneity across firms that diversify to related product categories within their established industry. This study seeks to examine how such intra-industry product diversity contributes to the performance of firms. Prior research has either revealed insignificant performance effects of intra-industry diversification or has produced inconsistent findings concerning the valence of these effects. This study suggests that intra-industry product diversity will be related to firm performance in a curvilinear fashion: at low levels as well as high levels of product diversity, performance is expected to be enhanced whereas weaker performance is expected at intermediate levels of diversity. This pattern is ascribed to benefits from economies of scope and impediments associated with negative transfer affects. In addition, this study conjectures that the U-shaped effect of intra-industry product diversity on performance becomes more pronounced as firms increase their R&D intensity, yet becomes attenuated as firms accumulate product diversity experience. Data on a sample of 156 U.S.-based packaged-software firms operating during 1990-2001 furnish empirical support for these conjectures. This study advances an emerging research stream on intra-industry diversification by underscoring some of its contingent performance effects.