Processes of Firm Growth and Diversification: Theory and Evidence

25 Pages Posted: 31 Oct 2013

See all articles by Alex Coad

Alex Coad

Waseda University

Christina Günther

WHU - Otto Beisheim School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: October 30, 2013

Abstract

In this short research note we investigate the role of diversification in the firm growth process. We build on Penrose’s (1959) Theory of the Growth of the Firm to formulate hypotheses about growth of employment, assets, and sales in the years before, during and after a new product introduction. We exploit a new database from the German machine tool industry which boasts a detailed and meaningful definition of diversification. Our exploratory analyses indicate that diversification, in terms of product introductions, is preceded by employment growth. Moreover, we find support that diversification is positively associated with subsequent asset growth, but negatively associated with subsequent employment growth.

Keywords: Diversification, Firm growth, Penrose, Machine tools, Growth process

JEL Classification: L6, L11, L20, L25

Suggested Citation

Coad, Alex and Guenther, Christina, Processes of Firm Growth and Diversification: Theory and Evidence (October 30, 2013). Available at SSRN: https://ssrn.com/abstract=2347548 or http://dx.doi.org/10.2139/ssrn.2347548

Alex Coad (Contact Author)

Waseda University ( email )

1-104 Totsukamachi, Shinjuku-ku
tokyo, 169-8050
Japan

Christina Guenther

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

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