Direct Estimation of Synergy: A New Approach to the Diversity-Performance Debate

Rachel Davis and L. G. Thomas
Additional contact information
Rachel Davis: Stern School of Business, New York University, 7-63 Management Education Center, 44 West 4th Street, New York, New York 10012
L. G. Thomas: School of Business, Emory University, 226 Rich Building, 1602 Mizell Drive, Atlanta, Georgia 30322

Management Science, 1993, vol. 39, issue 11, 1334-1346

Abstract: This study examines the linkages between relatedness and synergy in the context of diversification among U.S. pharmaceutical firms for the period 1960--1980. Rather than assume (as in the entropy, Herfindahl and concentric indices of diversification) that the levels of synergy generated by different related combinations of business units are identical, we estimate synergy directly using a modified version of the concentric index. In addition to estimating synergy using capital market performance of the firm as a whole, we examine the effects of nondrug diversification on the innovative productivity of firms' pharmaceutical divisions alone. Our two main findings are that production relatedness, such as that between drugs and chemicals, in fact did not imply synergy over the period of our study; and that the patterns of synergy for different types of relatedness shifted over time with the industry life cycle.

Keywords: diversification; synergy; industry-evolution; pharmaceuticals (search for similar items in EconPapers)
Date: 1993
References: Add references at CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.39.11.1334 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:39:y:1993:i:11:p:1334-1346

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().