The impact of intra-industry diversification on firm performance.

Abstract

We study how intra-industry diversification affects firms’ performances. In contrast to existing literature that suggest a non-linear relationship between intra-industry diversification and performance, we draw on resource-based view and degree of industry competition and argue that that this relationship follows a negative, linear pattern. The benefits of intra-industry diversification are limited when non-tech firms expand into traditional industry, where the competition is strong. We further argue that the benefits of intra-industry diversification for start-up firms in developing economies are higher than those in advanced economies. Because of institutional voids in developing economies, start-up firms can expand into new market space, improving the benefits of intra-industry diversification. We test hypotheses on 3,820 firms from South-east and East Asia, during 2009 to 2014 using panel data regression to estimate our model. Results provide support to our arguments.