An Environmental Perspective on Diversification: The Effects of Chemical Relatedness and Regulatory Sanctions

Abstract

This study integrates resource-based and institutional theory perspectives to examine relationships between the relatedness of chemicals used within the home and target industries of a potential diversifier, target industry regulatory sanctions, and the likelihood of diversification. First, we provide evidence that the level of such chemical relatedness between a home and a target industry increases the likelihood of diversification. Second, we find that the level of target industry regulatory sanctions has an inverted U-shaped effect on the likelihood that a firm will diversify into that industry. We also provide some evidence that chemical relatedness amplifies the inverted U-shaped effect of target industry regulatory sanctions.