infonet-economy

Different from previous literature on cross-industry diversification, this study investigates the performance implications of multiunit firms’ related and unrelated diversification within a single industry. Results of the world’s leading retail firms’ unit (i.e., retail format) diversification behavior over thirteen years (from 1997 to 2009) show that profits first decrease at low levels of relatedness and then increase at an increasingly higher level as corporate parents focus stronger on related within-industry diversification. Moreover, we find suggestive evidence that unrelated within-industry diversification has a negative effect on profits. Finally, the study indicates that especially related diversifiers who exceed a distinct (minimum) level of related within-industry diversification are able to develop capabilities over time that lead to superior firm performance.