Curvilinearity in the diversification-performance linkage: An examination of over three decades of research

While an extensive literature examines the diversification-performance rela tionship, little agreement exists concerning the nature of this relationshi p. Both theoretical and empirical disagreements abound. This study synthesi zes findings from three decades of research to address major theoretical is sues that remain open to debate. We derive three competing models from the literature and empirically assess these using meta-analytic data drawn from 55 previously published studies. The results of our tests indicate that mo derate levels of diversification yield higher levels of performance than ei ther limited or extensive diversification. Thus, we provide support for the curvilinear model; that is, performance increases as firms shift from sing le-business strategies to related diversification but performance decreases as firms change from related diversification to unrelated diversification. The results also indicate major effects from variation in diversification and performance operationalizations. Copyright (C) 2000 John Wiley & Sons, Ltd.