Theses and Dissertations - UTB/UTPA
Corporate diversification and the effects of firm characteristics on diversification modes: United States, European and Japanese firm behavior
Date of Award
Doctor of Philosophy (PhD)
Dr. Michael Minor
Dr. Vern Vincent
Dr. John Sargent
Many studies have examined corporate diversification (Porter, 1987; Ramanujam and Varadarajan, 1989; Markides and Williamson, 1994; Markides, 1995). A classical study of diversification transactions of 33 U.S. industrial firms during 1950–1986 by Porter (1987) provided historical background on U.S. leading firms during four decades. Porter (1987) found that U.S. large industrial firms were more active in acquisitions than other diversification modes such as joint ventures and startups. His study also shows that U.S. industrial firms divested many business units they had acquired, indicating unsuccessful diversification strategy.
I extended Porter's (1987) study to investigate the diversification behavior of the same U.S. firms in later years, 1987–1998. This study shows that the U.S. firms were still very active in acquisitions and invested more frequently in acquisitions than joint ventures and startups. The study also found that the U.S. firms shifted their diversification behavior, moving toward joint ventures.
I also generated a new sample of firms that currently dominate the U.S. economy and investigated their diversification behavior. This study shows that the current dominant U.S. firms were more likely to use acquisitions than joint ventures and startups. Comparing the current dominant U.S. firms (new sample) with the previously dominant U.S. firms (Porter's sample), I found that their acquisitions activities were about the same. However, the study shows that their diversification behavior was different. The current dominant U.S. firms preferred acquisitions to joint ventures and startups. The previously dominant U.S. firms also preferred acquisitions as their first choice. However, they preferred startups to joint ventures. Thus, startups have lost favor as preference for joint ventures has risen.
Investigating the effect of the firm's and the industrial characteristics on the firm's diversification behavior, I found that among four variables (firm's nationality, firm size, firm experience and the type of industry), the firm's nationality was the most important factor in explaining the firm's diversification behavior. The second most important variable was the type of industry.
For nationality, the study shows that the U.S. and European firms had the same diversification behavior. They were more likely to use acquisitions followed by joint ventures and startups for their diversification strategy. On the other hand, Japanese firms were more likely to use joint ventures followed by acquisitions and startups for their investment strategy.
For the type of industry, manufacturing, chemical and telecommunication firms were more likely to engage in acquisitions rather than other forms for their investments. The study also shows that manufacturing, chemical and automotive firms were also very active in investments in joint ventures.
University of Texas-Pan American
Copyright 2000 Somkiat Mansumitrchai. All Rights Reserved.
Missing pages 33 and 83.