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Firm size and unrelated diversification. An empirical test on the ‘survivalist hypothesis’

Author

Listed:
  • Enrico Guzzini

    (Università degli Studi e-Campus, Italy)

  • Donato Iacobucci

    (Dept. of Information Engineering Università Politecnica delle Marche, Italy)

Abstract

The aim of this paper is to empirically verify the hypothesis of a U shaped relation between size and unrelated diversification. Specifically we test the so called “survivalist hypothesis” according to which unrelated diversification is observed not only in large firms but also in small firms as a result of poor performance in the initial business. We empirically test this hypothesis using a representative sample of Italian business groups. The empirical results confirm the presence of a U shaped relation between size and unrelated diversification. Small groups are more diversified than medium-sized groups. We think that this is an interesting result, since according to traditional theories of diversification (resource based view and agency view) we should expect a linear and positive relation between size and unrelated diversification. The second novelty of the paper is that of considering the group rather than the single legal entity as unit of analysis. This is specifically appropriate in this case as unrelated diversification is often carried out by setting-up or acquiring new companies.

Suggested Citation

  • Enrico Guzzini & Donato Iacobucci, 2012. "Firm size and unrelated diversification. An empirical test on the ‘survivalist hypothesis’," Working Papers 1207, c.MET-05 - Centro Interuniversitario di Economia Applicata alle Politiche per L'industria, lo Sviluppo locale e l'Internazionalizzazione.
    • Handle: RePEc:cme:wpaper:1207
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    References listed on IDEAS

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    More about this item

    Keywords

    diversification; firm size; business groups;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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