Economic Themes (2025) 63 (3) 7, 367-384
Srđan Mirković, Mihajlo Ranisavljević
Abstract: Corporate diversification remains a central topic in contemporary strategic management, yet its impact on firm performance continues to spark debate. Related diversification can generate synergistic efficiencies and strengthen outcomes, whereas unrelated diversification often introduces coordination costs and reduces profitability. This study conducts a systematic analysis of leading theoretical perspectives and empirical findings to identify the conditions under which diversification improves—or undermines— business results. Both developed and emerging markets are included, enabling comparisons across different institutional and industrial environments. Evidence indicates that a moderate degree of business-activity variety produces the most favourable effects, while excessive expansion increases costs and weakens performance. Although internal capital markets may provide temporary protection during periods of economic instability, this advantage is largely short-lived. The paper therefore recommends that managers align the scope and mode of diversification with available resources and the specific business environment, since only a carefully balanced combination of breadth and focus can preserve and enhance a company’s longterm value.
Keywords: corporate diversification; firm performance; conglomerate discount; institutional context; strategic management.
CORPORATE DIVERSIFICATION AND BUSINESS PERFORMANCE: THEORETICAL FRAMEWORKS, INSTITUTIONAL CONTEXT AND DYNAMIC EFFECTS
Srđan Mirković, Mihajlo Ranisavljević
Abstract: Corporate diversification remains a central topic in contemporary strategic management, yet its impact on firm performance continues to spark debate. Related diversification can generate synergistic efficiencies and strengthen outcomes, whereas unrelated diversification often introduces coordination costs and reduces profitability. This study conducts a systematic analysis of leading theoretical perspectives and empirical findings to identify the conditions under which diversification improves—or undermines— business results. Both developed and emerging markets are included, enabling comparisons across different institutional and industrial environments. Evidence indicates that a moderate degree of business-activity variety produces the most favourable effects, while excessive expansion increases costs and weakens performance. Although internal capital markets may provide temporary protection during periods of economic instability, this advantage is largely short-lived. The paper therefore recommends that managers align the scope and mode of diversification with available resources and the specific business environment, since only a carefully balanced combination of breadth and focus can preserve and enhance a company’s longterm value.
Keywords: corporate diversification; firm performance; conglomerate discount; institutional context; strategic management.
