Corporate performance and diversification from a resource-based view: A comparison between small and medium-sized Austrian firms

The effect of diversification on corporate performance has shown controversial results in prior research, ranging from the potential to improve performance to the risk of performance reduction. The aim of this study is to explain separately the effect of diversification and some selected variables on the profitability of small- and medium-sized Austrian firms and to test some research hypotheses based on prior research. For this study 1,095 observations were analyzed for small- and medium-sized firms over a three-year period. The resource-based-view (RBV) has been chosen as the theoretical framework of this study. The results provide no clear evidence as to whether related or unrelated diversification leads to higher profitability, because it depends on how profitability is measured. This result holds for small- and medium-sized firms (SMEs). Additionally, there is no significant reduction in risk for diversified companies. Only related diversification exhibited a significantly lower risk when compared to non-diversified medium-sized firms. Finally, the RBV can only partially explain and predict diversification strategy and its outcome on profitability and risk.