Diversification and Performance: A Reexamination using A New Two-Dimensional Conceptualization of Diversity in Firms

Abstract

The article discusses a study which examines the linkage between diversity and performance using a two-dimensional conceptualization of diversity in business enterprises. Methods for measuring diversity are considered. The 1974 work of Richard P. Rumelt is cited for pioneering research into the subject. Two patterns of diversification - narrow spectrum diversification (NSD) and broad spectrum diversification (BSD) are defined according to industry classifications. A sample of U.S. firms are analyzed, revealing systematic differences in risk across several categories of diversification.