The Impact of Diversification Strategy on Risk Return Performance

Publication Type

Journal Article

Publication Date

1989

Abstract

This study examines the impact of diversification strategy on risk and return in diversified firms. Following an assessment of previous research on strategic risk, relationships between risk, return, and diversification strategy are hypothesized. Regression analysis shows that differences in risk-return performance among diversified firms are more closely associated with structural factors associated with markets and businesses than with the particular diversification strategy chosen. Returns also influence the choice of diversification strategles which, in turn, do not get rewarded with higher profits. A curvilinear risk-return relationship is also observed which is consistent with previous theoretical suggestions. Implications for the strategic management of risk are then drawn.

Discipline

Business

Research Areas

Strategy and Organisation

Publication

Strategic Management Journal

Volume

10

Issue

3

First Page

271

Last Page

284

ISSN

0143-2095

Identifier

10.1002/smj.4250100306

Publisher

Wiley

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