Diversification patterns and survival as firms mature

Alex Coad () and Christina Guenther ()

Small Business Economics, 2013, vol. 41, issue 3, 633-649

Abstract: We focus on the relationship between age and diversification patterns of German machine tool manufacturers in the post-war era. We distinguish between ‘minor diversification’ (adding a new product variation within a familiar submarket) and ‘major diversification’ (expanding the product portfolio into new submarkets). Our analysis reveals four main insights. First, we observe that firms have lower diversification rates as they grow older, and that eventually diversification rates even turn negative for old firms on average (where negative diversification corresponds to exit from certain product lines). Second, we find that product portfolios of larger firms tend to be more diversified. Third, with respect to consecutive diversification activities, quantile autoregression plots show that firms experiencing diversification in one period are unlikely to repeat this behavior in the following year. Fourth, survival estimations reveal that diversification activities reduce the risk of exit in general and to a varying degree at different ages. These results are interpreted using Penrosean growth theory. Copyright Springer Science+Business Media, LLC. 2013

Keywords: Diversification patterns; Industry evolution; Firm age; Firm growth; Survival; Machine tools; L6; L11; L20; L25 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (16)

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DOI: 10.1007/s11187-012-9447-7

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