Unrelated diversification refers to the entrance of a firm into unrelated areas of activity. Unrelated diversification can help firms widen their knowledge bases and be more effective at meeting the challenges of an adverse industry. However, organizational knowledge is path-dependent; thus, firms are unlikely to reap benefits from their progressively unrelated diversification actions. Results of this investigation suggest that adverse industry conditions seem to push firms to diversify into progressively unrelated industries. However, given the limited knowledge benefits of unrelated diversification, stock market reactions to the firms unrelated diversification actions are likely to be negative for the most part. This negative effect is more pronounced at high levels of industry adversity.
|Keywords:||Diversification, Organizational Learning, Stock Market Reactions|
Doctoral student, Department of Management, University of North Texas, Denton, Texas, USA
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