EconPapers    
Economics at your fingertips  
 

Can the Survivor Principle Survive Diversification?

Lasse B. Lien () and Peter Klein
Additional contact information
Lasse B. Lien: Department of Strategy and Management, Norwegian School of Economics, 5035 Bergen, Norway

Organization Science, 2013, vol. 24, issue 5, 1478-1494

Abstract: The survivor principle holds that the competitive process weeds out inefficient firms, so that hypotheses about efficient behavior can be tested by observing what firms actually do. This principle underlies a large body of empirical work in strategy, economics, and management. But do competitive markets really select for efficient behavior? Is the survivor principle reliable? We evaluate the survivor principle in the context of corporate diversification, asking if survivor-based measures of interindustry relatedness are good predictors of firms’ decisions to exit particular lines of business, controlling for other firm and industry characteristics that affect firms’ portfolio choices. We find strong, robust evidence that survivor-based relatedness is an important determinant of exit. This empirical regularity is consistent with an efficiency rationale for firm-level diversification, though we cannot rule out alternative explanations based on firms’ desire for legitimacy by imitation and attempts to temper multimarket competition.

Keywords: diversification; exit; relatedness; survivor principle (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://dx.doi.org/10.1287/orsc.1120.0793 (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:ororsc:v:24:y:2013:i:5:p:1478-1494

Access Statistics for this article

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

 
Page updated 2025-03-19
Handle: RePEc:inm:ororsc:v:24:y:2013:i:5:p:1478-1494