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Rational Model Of Decision Making, Strategy, And Firm Performance

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  • GOLL, IRENE
  • SAMBHARYA, RAKESH B.

Abstract

The present study tests the proposition that the normative rational model of decision making influences diversification strategy which, in turn, influences the firm's performance. Questionnaires measuring rational decision making were mailed to 441 large U.S. manufacturing firms with a response rate of 23%. Compustat was used to measure Palepu's entropy measures of diversification: total, related, and unrelated diversification. The results show a significant positive relationship between top management's emphasis on rational decision making and diversification as well as a significant negative relationship between diversification and firm performance. Thus, the study shows strong support for the role of diversification strategy as a mediator between rational decision making and firm performance.

Suggested Citation

  • Goll, Irene & Sambharya, Rakesh B., 1998. "Rational Model Of Decision Making, Strategy, And Firm Performance," Scandinavian Journal of Management, Elsevier, vol. 14(4), pages 479-492, December.
    • Handle: RePEc:eee:scaman:v:14:y:1998:i:4:p:479-492
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    Cited by:

    1. Ioanna Deligianni & Irini Voudouris & Spyros Lioukas, 2017. "Do Effectuation Processes Shape the Relationship between Product Diversification and Performance in New Ventures?," Entrepreneurship Theory and Practice, , vol. 41(3), pages 349-377, May.

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