Qual Quant (2011) 45:59–73
Diversiﬁcation strategy, CEO management style and ﬁrm
performance: an application of Heckman’s two-stage
Almudena Martínez-Campillo ·
Published online: 13 January 2010
© Springer Science+Business Media B.V. 2010
Abstract This paper aims to explore whether CEOs’ management style as agents or as
stewards, which depends on their psychological and situational characteristics, moderates
the effect of the diversiﬁcation strategy on ﬁrm performance. After applying Heckman’s
two-stage method to control econometrically for endogeneity bias in empirical work, results
demonstrate that the relationship between diversiﬁcation and profitability varies significantly
depending on the management style of the diversifying CEO.
Keywords Diversiﬁcation strategy · CEO management style · Firm performance ·
Heckman’s two-stage method
The effect of diversiﬁcation on ﬁrm performance is the focus of an extensive research (Denis
et al. 1997, 1999; Miller 2004, 2006; Palepu 1985; Singh et al. 2007; Villalonga 2004).
Despite this research, the empirical evidence is contradictory. A ﬁrst set of studies reports
a positive impact of this strategy on ﬁrm performance (Miller 2006; Villalonga 2004). The
second one concludes a negative relationship (Singh et al. 2007). A third set of studies ﬁnds
no signiﬁcant relationship (Palepu 1985) and, ﬁnally, the fourth set of ﬁndings reports that
the diversiﬁcation–performance relationship is not linear, but curvilinear (Palich et al. 2000).
Thus, new approaches are necessary to investigate the diversiﬁcation–performance relation-
ship. Firstly, one option is to consider the moderating role that certain variables can exercise
on such a relationship (Hoskisson and Hitt 1990; Kim et al. 2004). In this paper, we intro-
duce one moderator that does not seem to have been the focus of any previous research: the
diversiﬁcation–managing style of the diversifying CEO; that is, the CEO that formulates and
implements this corporate strategy.
A. Martínez-Campillo (
) · R. Fernández-Gago
Facultad de CC. Económicas y Empresariales, University of León,
Campus de Vegazana s/n, 24071 León, Spain