Corporate Diversification and Risk: Portfolio Effects and Resource Redeployability

Research output: Contribution to journalArticlepeer-review


By analogy with portfolio diversification by stock market investors, managers and researchers have often expected that firms that spread operations across product or geographic markets reduce risk. However, numerous exploratory studies in corporate strategy and in international business have not been able to robustly confirm this expectation. This study develops a formal model to scrutinize implications of corporate diversification for corporate risk. The model incorporates the key distinction of corporate diversification, economies of scope, that qualifies the analogy between corporate and portfolio diversification. The presence of a particular type of economies of scope, resource redeployability, not only inherently increases risk but it can also raise risk over the level in undiversified firms. The model uses determinants of resource redeployability from previous research to derive conditions with which corporate diversification enhances risk. The developed elaborate operationalization of corporate risk should facilitate future research and help corporate managers.

Original languageEnglish (US)
Pages (from-to)317-329
Number of pages13
JournalStrategy Science
Issue number4
StatePublished - Dec 2022


  • corporate strategy
  • diversification
  • international management
  • resource redeployment

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management
  • Management Science and Operations Research
  • Management of Technology and Innovation


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