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    The risk implications of diversification: Integrating the effects of product and geographic diversification

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    Publication type
    Vlerick strategic journal article
    Author
    Mammen, Jan
    Alessandri, Todd
    Weiss, Martin
    Publication Year
    2021
    Journal
    Long Range Planning
    Publication Volume
    54
    Publication Issue
    1
    
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    Abstract
    The risk implications of product diversification have received considerable attention from scholars. However, our understanding of the effects of geographic diversification on risk is more limited. Relying on resource-based theory to frame our arguments, we argue that despite some similarities, the two types of diversification have differing effects on firm risk. We first establish the risk reducing effects for product diversification. We then integrate the unique aspects of geographic diversification that serve as a boundary condition to the RBV perspective, arguing for the risk increasing effects of geographic diversification. Finally, since many firms pursue both forms of diversification simultaneously, we explore the joint effects of both product and geographic diversification. We test our hypotheses in a longitudinal model on a sample of S&P 500 firms. Our findings suggest that total product diversification, as well as related diversification reduce risk, while total geographic diversification increases risk. Furthermore, our data provide evidence of a complex combination of joint effects of these two forms of diversification. These findings offer a more complete understanding of the risk effects of corporate diversification.
    Keyword
    Product Diversification, Geographic Diversification, Firm Risk, Resource-based View
    Knowledge Domain/Industry
    Strategy
    DOI
    10.1016/j.lrp.2019.101942
    URI
    http://hdl.handle.net/20.500.12127/6417
    ae974a485f413a2113503eed53cd6c53
    10.1016/j.lrp.2019.101942
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