Organizational Learning and Corporate Diversification Performance

Andreou, P.; Louca, C.; Petrou, A.P.

Abstract

This study investigates the role of organizational learning on the valuation effects of corporate diversification. The empirical findings suggest that corporate diversification reduces shareholders' wealth. However, consistent with the absorptive capacity viewpoint of organizational learning, diversification performance depends on repetitive and accumulative experiences that relate to a firm's prior diversification activity and/or a firm's experience in operating in multiple-business segments. Specifically, single-business firms that diversify once demonstrate significant value reduction. In contrast, multi-business firms that diversify once do not demonstrate value reduction, while single/multi-business firms that diversify multiple times demonstrate value creation. Findings also reveal that performance is conditional on the mode of diversification since internal growth diversification shows higher valuation effects than diversifications through acquisitions. These findings contribute to the literature by affirming the importance of organizational learning, a cognitive and behavioral perspective, in explaining the valuation effect of corporate diversification.

Citation

Andreou, P., Louca, C., & Petrou, A. (2016). Organizational Learning and Corporate Diversification Performance. Journal of Business Research, 69(9), 3270-3284. https://doi.org/10.1016/j.jbusres.2016.02.022

• Journal Article Type: Article
• Acceptance Date: Nov 11, 2015
• Online Publication Date: Mar 22, 2016
• Publication Date: Sep 1, 2016
• Deposit Date: Jan 4, 2016
• Publicly Available Date: Sep 22, 2017
• Journal: Journal of Business Research
• Print ISSN: 0148-2963
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 69
• Issue: 9
• Pages: 3270-3284
• DOI: https://doi.org/10.1016/j.jbusres.2016.02.022
• Keywords: Organizational learning, Absorptive capacity, Diversification, Repetitive experience, Accumulative experience, Diversification discount, Firm performance
• Public URL: https://durham-repository.worktribe.com/output/1415800