Carrying Out Unrelated Diversification When Facing Difficult Industry Conditions: An Organizational Learning Perspective

By Daniel A. Cernas Ortiz.

Published by The Organization Collection

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Article: Print $US10.00
Article: Electronic $US5.00

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

International Journal of Knowledge, Culture and Change Management, Volume 11, Issue 3, pp.147-160. Article: Print (Spiral Bound). Article: Electronic (PDF File; 2.101MB).

Daniel A. Cernas Ortiz

Doctoral student, Department of Management, University of North Texas, Denton, Texas, USA

I am a doctoral student in the Department of Management at the University of North Texas. My primary research interests focus on corporate level strategy; more specifically, corporate diversification, and mergers & acquisitions. I am also interested in factors such as dynamic capabilities that are believed to impact the competitive advantage of firms.

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