PRIOR PERFORMANCE AND CHOICE OF DIVERSIFICATION STRATEGY

Abstract

Most literature has debated on the effect of diversification strategy and performance. However, the issue that could enhance performance is far from over either related or unrelated. Further investigation from different perspectives should be conducted to determine the relationship between diversification strategy and performance. Possibly, prior performance dictates the selection of diversification strategy as high performing firms focus on related business while low performing firms pursue unrelated business. In finding the evidence, panel data analysis was used on a sample of 76 Malaysian firms from various industries for the period of 1994 to 2007. Based on empirical research, this paper tests and confirms that prior performance influences selection of diversification strategy.