The link between product diversification and performance among Spanish manufacturing firms: Analyzing the role of firm size

• Author: José Ángel Zúñiga‐Vicente,Diana Benito‐Osorio,Alberto Colino
• Published date: 01 March 2015
• Date: 01 March 2015
• DOI: http://doi.org/10.1002/cjas.1303

The link between product diversification and

performance among Spanish manufacturing

firms: Analyzing the role of firm size

Diana Benito-Osorio*

Rey Juan Carlos University

Alberto Colino

Comillas Pontif‌ical University

José Ángel Zúñiga-Vicente

Rey Juan Carlos University

Abstract

This study sheds additional light on the product

diversif‌ication-performance relationship for f‌irms in a coun-

try having recently attained an advanced economy status in

our period of analysis. We assume there will be an inverted

U-shaped relationship and use a sample of small, medium,

and large Spanish manufacturing f‌irms between 1994 and

2008. Our f‌indings provide solid support for this assump-

tion, and are identical when the sample consists of small,

medium, and large f‌irms and of large f‌irms alone. Our re-

sults also suggest that the larger the f‌irm, the higher the op-

timal level of diversif‌ication. Panel data models are used to

control for unobservable heterogeneity and potential

endogeneity problems. Copyright © 2015 ASAC. Published

by John Wiley & Sons, Ltd.

Keywords: product diversif‌ication, f‌irm performance,

inverted U-shaped relationship, Spanish manufacturing

f‌irms, panel data

Résumé

Cette étude permet de mieux cerner la relation entre la diver-

sif‌ication des produits et la performance au sein des f‌irmes

localisées dans un pays qui a tout récemment atteint le statut

d’économie avancée. Elle pose comme hypothèse que la rela-

tion entre la diversif‌ication des produits et la performance

est une relation en U renversé et s’appuie sur un échantillon

de petites, moyennes et grandes entreprises de fabrication

espagnoles entre 1994 et 2008. Les résultats, qui valident

de façon convaincante notre hypothèse, restent inchangés

quand on considère les petites, moyennes et grandes f‌irmes

ou uniquement les grandes f‌irmes. Ils indiquent également

que plus une f‌irme est grande, plus son niveau optimal de

diversif‌ication est élevé. Les modèles de données de panel

sont utilisés pour contrôler l’hétérogénéité non observable

et les problèmes d’endogénéité potentiels. Copyright ©

2015 ASAC. Published by John Wiley & Sons, Ltd.

Mots-clés : diversif‌ication des produits, performance des

entreprises, relation en U-renversé, entreprises de fabrication

espagnoles, données de panel

For decades, product diversif‌ication (PD, hereafter) has

been the most popular strategy followed by large, expanding

corporations in the United States, Europe (e.g., France,

Germany, Italy, Germany, and the UK), and Japan, as well

as in other industrialized nations and emerging and transition

economies (Hoskisson, Eden, Lau, & Wright, 2000; Nippa,

Pidun, & Rubner, 2011; Wan, Hoskisson, Short, & Yiu,

2011). This helps to explain why over the past 50 years

the PD-performance relationship has been studied by a num-

ber of scholars in different countries and from disciplines

such as economics, f‌inance, or strategic management.

Indeed, in strategic management it is considered a key topic

(Chatterjee & Wernerfelt, 1991; Palich, Cardinal, & Miller,

2000; Zahavi & Lavie, 2013).

Despite the large number of empirical studies on the

topic, there is no clear consensus on the nature of the rela-

tionship between PD and performance (Bausch & Pils,

2009; Palich et al., 2000). There are studies reporting a posi-

tive and linear relationship between the level of PD and per-

formance (e.g., Chang & Hong, 2002; Miller, 2006). There

are also studies that f‌ind a negative and linear relationship

This paper was f‌inancially supported by the Spanish Ministry of Science

and Innovation (Ref.: ECO2010-21473), Spanish Ministry of Economy

and Competitiveness (Ref.: ECO2012-36775), and Rey Juan Carlos Univer-

sity with f‌inancial support for young researchers (Ref.: PRIN13_CSJ05).

*Please address correspondence to: Diana Benito-Osorio, Rey Juan Carlos

University, Department of Management, Paseo de los Artilleros s/n.

28032, Madrid (Spain). Email: diana.benito@urjc.es

Canadian Journal of Administrative Sciences

Revue canadienne des sciences de l’administration

32:58–72 (2015)

Published online 13 February 2015 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/CJAS.1303

Can J Adm Sci

32(1), 58–72 (2015)Copyright © 2015 ASAC. Published by John Wiley & Sons, Ltd. 58