Do Institutions Matter for the Relationship between Diversification and Performance? A Meta-Analysis

Lohwasser Todor, Wagner Dominik, van Essen Marc, Lander Michel, Marano Valentina

Abstract

This paper offers a multilevel meta-analytic study of the relationship between business diversification and firm performance, encompassing 462 primary studies which cover 40 different countries. Whereas our work confirms the generally negative relationship of prior meta-analyses, this study further reveals considerable variability between the type of diversification (related vs. unrelated) and the countries considered. In particular, we find that related diversification has a positive effect on performance. We also encounter, that some institutional voids variables moderate the diversification-firm performance in the predicted relationship. Legal voids deteriorate the performance of diversified firms. Educational voids, however, lead to a positive focal relationship. We further find for legal voids the opposite for related diversification, namely that the effectiveness of a formal institution enhances the focal relationship. Our study shows a nuanced view about importance of type and institutional voids on the diversification-performance relationship.