Measurement of Firm Diversification: Is It Robust?

Abstract

This study investigated the convergent validity of Rumelt’s categorical classification of types of business diversification across different data sources and variations from Rumelt’s method. The study also assessed convergent and predictive validity of Rumelt’s classification and continuous measures of diversification. It also investigates the ability of continuous measures to discriminate between Rumelt’s categories. The results suggest weak convergent validity for Rumelt’s measures but good discriminating power of continuous measures to discriminate between Rumelt’s measures. Finally, the measures demonstrate predictive validity with specific performance criteria.