The relationship between the type of diversification and overall firm performance

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What is the relationship between diversification and firm performance?
What is the relationship between diversification and firm performance quizlet?
What is the shape of the relationship between the level of diversification and performance?
How diversification can enhance firm performance?

The relationship between the type of diversificationand overall firm performance takes on the shape ofan inverted U (see Exhibit 8.9).Unrelated diversification often results in adiversification discount: the stock price of suchhighly diversified firms is valued at less than the sumof their individual business units.Related diversification often results in adiversification premium: the stock price of related-diversification firms is valued at greater than thesum of their individual business units.In the BCG matrix, the corporation is viewed as aportfolio of businesses, much like a portfolio of stocksin finance (see Exhibit 8.11). The individual SBUs areevaluated according to relative market share and thespeed of market growth, and are plotted using one offour categories: dog, cash cow, star, and questionmark. Each category warrants a different investmentLO 8-8Explainwhen adiversification strategycreates acompetitiveadvantageand when itdoes not.

What is the relationship between diversification and firm performance?

First, the traditional view has been that the effect of diversification on firm performance is inverted U-shaped, such that low levels and related types of diversification have positive firm performance consequences, whereas high levels and less related types of diversification strategies have negative performance ...

What is the relationship between diversification and firm performance quizlet?

Low firm performance is associated with increased diversification. Performance continues to increase as diversification increases from single business to unrelated diversification.

What is the shape of the relationship between the level of diversification and performance?

Strategic management scholars have argued for an inverted U-shaped relationship between levels of diversification and firm performance (Rumelt, 1974).

How diversification can enhance firm performance?

If firms opt for related diversification, that provides good output and reduces total risk. However, if management goes for unrelated diversification, it may have a negative impact on firm value. Corporate diversification strategy helps firms to expand business activities and get maximum profit (Phung and Mishra 2016).