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Literature Review On Diversification

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Diversification has been the subject of a considerable amount of research. Empirical studies focused their attention on its manifold aspects, from the extent of diversification in a company, to it directions in related and unrelated business segments, to its financial and strategic consequences within a corporation. Ramanujam V. and Varadarajan P. (1989) wrote that literature on diversification not only covers a variety of prospectives and disciplinary paradigms, but it also deals with numerous research questions and issues. Early studies date as back as to the ‘70s, to Wringley (1970) and Rumelt (1974) who pioneered the use of categorical measures of diversification based on the relatedness of the firm’s businesses. Rumelt’s research, moreover, studied the effect of diversification conditional on the degree and type of relatedness across firm’s activities and classified firms into four groups: “single-business”, in which more than 95% of a firm’s revenue is derived from a single activity; “dominant-business”, with revenue from a single activity between 70-95 %; “related business” and “unrelated business”, where less than 70% is earned as revenue from a single activity, but in the former the other product lines are closely related to the main one while in the latter are not.
Divergent conclusions have been reached until today by different studies; this section aims at briefly reviewing the empirical evidence regarding the effects of diversification mainly on corporate

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