Diversification and Economic Performance: An Empirical Assessment of Chinese Firms

Integrating the impact of both resource and institutional factors and taking into consideration potential agency problems, this study proposes to investigate the joint effect of both related and unrelated diversification strategies on firm performance in an emerging economy setting and to assess empirically the hypothesized relationship using Chinese firms. The empirical results support the basic contention that both resource building and utilization through concentration and related diversification and institutional environmental management through unrelated diversification are important for firm performance in emerging economies but they must be considered together. This paper concludes with a discussion of its contributions, practical implications, and directions for future research.