THE INDEPENDENT AND JOINT EFFECTS OF THE SKILL AND PHYSICAL BASES OF RELATEDNESS IN DIVERSIFICATION

By examining the independent and joint effects of the skill and physic al bases of relatedness, this study develops a multidimensional view o f relatedness in diversification. The paper compares the ways the two bases identify relatedness, and examines empirically the relationship between relatedness and performance for a sample of 158 large diversif ied manufacturing firms. Each base of relatedness alone had no signifi cant effect on financial performance. However, when the Two approaches were combined, there was a strong positive effect on most indicators of performance. The findings demonstrate how different bases of relate dness complement and extend one another, and they clarify findings of previous studies that used a single base of relatedness. (C) 1998 John Wiley & Sons, Ltd. Strat. Mgmt. J. Vol. 19, 611-630 (1998).