Review of Industrial Organization 23: 25–41, 2003.
© 2003 Kluwer Academic Publishers. Printed in the Netherlands.
Diversiﬁcation Strategies and Corporate Coherence
Evidence from Italian Leading Firms
and DAVIDE VANNONI
University of Torino and Ceris-CNR
Abstract. This paper investigates the determinants of coherence and coherence change using a
sample of Italian leading ﬁrms in the period 1993–1996. Consistently with the hypotheses advanced
by Teece et al. (1994), the econometric analysis highlights that relatedness between pairs of sectors
and coherence of diversiﬁcation strategies are higher when ﬁrms are active in sectors sharing similar
technological and marketing characteristics, and when they are positioned at different stages of the
productive chain. Moreover, the ﬁndings that ﬁrms which enter the group of top 5 industry leaders
are more coherent than the average and that coherence is increasing for ﬁrms active in sectors more
sensitive to EU integration are consistent with the prediction that coherent ﬁrms tend to outperform
less coherent ones and that coherence is increasing in more competitive environments. Finally, the
results show that a deepening of vertical integration strategies is good for coherence change, while
an increase of diversiﬁcation brings a reduction in coherence.
Key words: coherence, diversiﬁcation, relatedness.
JEL Classiﬁcations: L2, L21.
Among the different views on the birth, growth and decline of multi-product ﬁrms
(see Montgomery, 1994, for a survey), the resource theory (Penrose, 1959) sees
diversiﬁcation as driven by the accumulation of ﬁrm speciﬁc tangible and intan-
gible assets, that, being sharable between uses, can be fruitfully employed to enter
into similar industries. Firms should then pursue related diversiﬁcation strategies,
by exploiting the complementarities and synergies due to the presence of some
common technology or market characteristics. In a similar vein, Teece et al. (1994)
consider relatedness among the different constituent businesses of a ﬁrm as the key
element behind the notion of corporate coherence. The authors, starting from the
observation that ﬁrms’ product portfolios are not distributed at random (i.e., they
The contents of this work are the result of our own analyses and evaluations, and they are
independent of the views of Accenture.
Author for correspondence: Davide Vannoni, Department of Economics ‘G. Prato’, Faculty of
Economics, University of Turin, Corso Unione Sovietica 218 bis, 10100 Torino, Italy. Tel: ++39-
011-6706083; Fax: ++39-011-6706062; E-mail: firstname.lastname@example.org