A critical review of diversification theoretical perspectives and its impact on performance
The purpose of this conceptual paper is to critically review the relationship of diversification strategy and firm performance. Evaluation of prior empirical research is analyzed and an exhaustive conceptual framework is developed. Literature indicates that diversification degree, type and mode have a direct impact on performance levels. However, other factors such as industry structure and organizational elements govern this relationship and moderating its effects. Financial and risk are employed as financial performance indicators. The empirical verification has identified three streams of research; diversification degree and performance, diversification type and performance, and finally, diversification mode and performance. A qualitative approach is adopted to discuss and critique relevant literature. Findings show that the true diversification-performance connection is inconclusive as studies exhibit contradictory views. Research limitations indicate that many studies focus on one diversification variable and none involved the exploration of multiple independent variables.