Diversification relatedness and economic performance: does the resource plasticity channel matter?

Abstract

In this paper, we examine the link between corporate diversification relatedness and economic performance through the resource plasticity channel. In order to do so, we estimate a dynamic panel on a data set of 2,396 diversified firms from the euro area over the 2010-2017 period. Our empirical research documents that a percentage point increase in the level of unrelated diversification is significantly associated with a 1.52 percent improvement in performance and vis-à-vis related diversification with a 1.09 percent increase in performance, considering the sensitivity of these relationships to resource plasticity. These findings contribute to the literature by documenting that diversification relatedness positively impacts performance. Furthermore, evidence is also consistent with the proposition that this relationship is sensitive to resource plasticity. Our results hold after controlling for endogeneity bias and are robust to alternative variable specifications.