Firm Size, Diversification, and Profitability of Large Corporations in Canada

The relationships among firm size, profitability and diversification are examined for a sample from the top 400 industrial firms in Canada in 1975. Account is taken of industry‐specific factors and of foreign ownership. The main findings are that increasing firm size is not associated with higher profitability, larger firms do appear to experience greater prof it stability, and the relationship between firm size and diversification is positive but weak. Industry factors are far more important than firm size in determining inter‐firm variations in diversification, implying that diversification is not undertaken as a means to stabilise profits by all large firms.