Diversification strategy, profit performance and the entropy measure

Diversification strategy, profit performance and the entropy measure Several industrial organization studies, using diversification index measures, examined corporate diversification and economic performance and failed to find any significant relationship between them. Rumelt and other strategy researchers used a semisubjective classification scheme and uncovered a systematic relationship between diversification strategies and performance. This study combines the strengths of the index approach, namely, simplicity, objectivity and replicability, with the essential richness of Rumelt's methodology. Using the Jacquemin‐Berry entropy measure of diversification and the line‐of‐business data, this study finds that firms with predominantly related diversification show significantly better profit growth than firms with predominantly unrelated diversification. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Strategic Management Journal Wiley

Diversification strategy, profit performance and the entropy measure

Strategic Management Journal, Volume 6 (3) – Jul 1, 1985

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Publisher
Wiley
Copyright
Copyright © 1985 John Wiley & Sons, Ltd.
ISSN
0143-2095
eISSN
1097-0266
DOI
10.1002/smj.4250060305
Publisher site
See Article on Publisher Site

Abstract

Several industrial organization studies, using diversification index measures, examined corporate diversification and economic performance and failed to find any significant relationship between them. Rumelt and other strategy researchers used a semisubjective classification scheme and uncovered a systematic relationship between diversification strategies and performance. This study combines the strengths of the index approach, namely, simplicity, objectivity and replicability, with the essential richness of Rumelt's methodology. Using the Jacquemin‐Berry entropy measure of diversification and the line‐of‐business data, this study finds that firms with predominantly related diversification show significantly better profit growth than firms with predominantly unrelated diversification.

Journal

Strategic Management JournalWiley

Published: Jul 1, 1985

References

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