ERBE 02 1 02
Diversification Relatedness and Economic Performance: Does the Resource Plasticity Channel Matter?
JORGE MOTA a and MÁRIO COUTINHO DOS SANTOS b
a CICEE – Research Center in Economics & Business Sciences, and Department of Economics, Management, Industrial Engineering and Tourism, University of Aveiro, Portugal; b CICEE – Research Center in Economics & Business Sciences, Universidade Autónoma de Lisboa, and Universidade Católica Portuguesa, Portugal.
To cite this article:
Mota, J. & M. Coutinho dos Santos. 2022. Diversification Relatedness and Economic Performance: Does the Resource Plasticity Channel Matter? European Review of Business Economics II(1): 27-46.
DOI: https://doi.org/10.26619/ERBE-2022.2.1.2
Received: 27 June 2022. Accepted 15 November 2022. Published: 31 December 2022
Language: English
Abstract
This paper explores the link between corporate diversification relatedness and economic performance, through the resource plasticity channel. To that end, we estimate a dynamic data panel of 15,054 diversified firms from the European Union (EU) over the 2011-2019 period. We found that considering the sensitivity of unrelated / related diversification relationship with resource plasticity, a percentage point increase in the level of unrelated / related diversification, is significantly associated with a 1.8 / 1.39 percent improvement in performance, respectively. These findings contribute to the ‘bright side’ of the diversification literature. Additionally, we provide evidence on the positive relationship between diversification relatedness and performance. Furthermore, evidence is also consistent with the proposition that this relationship is sensitive to resource plasticity. Our results hold after controlling for endogeneity bias and are robust to alternative variable specifications.
Keywords
M-firm; related/unrelated diversification; performance; resource plasticity.
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