Product diversification strategy and financial performance: meta-analytic evidence on causality and construct multidimensionality

We meta-analytically integrate empirical data from 104 studies published between 1970 and 2005 and test whether the popular proposition that diversification strategy impacts financial performance holds after controlling for the difference between correlational estimates that indicate mere association and such that allow for inferring causation. Drawing on a total sample size of 82,742 observations, we find that temporal sequence of variable measurement and multidimensionality of both diversification and performance construct strongly influence the nature of the linkage observed in empirical research. Meta-analytic results suggest that strategies of related and unrelated diversification are significantly associated with concurrent but not with subsequent accounting- and market-based performance. Most importantly, we find that there is no such thing as a universally valid nature of the diversification strategy–performance linkage. Drawing on a quantitative integration of the relevant literature of unprecedented scope and detail, our findings challenge earlier meta-analytic results and contemporary theory on the performance effects of diversification strategy. Our study also has important implications for measurement designs of future diversification–performance research.