Financial Crisis and Corporate Diversification: Evidence from Acquisitions in Italy 2007-2010

The recent financial crisis has led to a great level of environmental uncertainty and dramatically affected managers' expectations and firms' corporate strategies, including their acquisition moves. Building on a sample of 385 acquisitions in Italy in the period 2007-2010, the paper addresses the question whether and to what extent the financial crisis has influenced firms' acquisition behaviors. In particular, the study aims at exploring the relationship between financial crisis and the firm's decision to diversify through acquisitions. Empirical evidence shows that in crisis times acquisitions characterized by null or related corporate diversification prevail: firms are more likely to focus on their core business or related ones. In addition, other factors like firm acquisition experience and internationalization moderate the effect of financial crisis on diversifying acquisitions: During financial crisis firms rely more on their previous acquisition experience in order to explore new, unrelated businesses through acquisitions. In addition, in times of financial crisis internationalization and diversification tend to be complements, rather than substitutes: compared to domestic ones, cross-border acquisitions are more likely to be associated with diversification goal.