The link between product diversification and performance among Spanish manufacturing firms: analyzing the role of firm size

Abstract

This study sheds additional light on the product diversification-performance relationship for firms in a country having recently attained an advanced economy status in our period of analysis. We assume there will be an inverted U-shaped relationship and use a sample of small, medium, and large Spanish manufacturing firms between 1994 and 2008. Our findings provide solid support for this assumption, and are identical when the sample consists of small, medium, and large firms and of large firms alone. Our results also suggest that the larger the firm, the higher the optimal level of diversification. Panel data models are used to control for unobservable heterogeneity and potential endogeneity problems.

This study sheds additional light on the product diversification-performance relationship for firms in a country having recently attained an advanced economy status in our period of analysis. We assume there will be an inverted U-shaped relationship and use a sample of small, medium, and large Spanish manufacturing firms between 1994 and 2008. Our findings provide solid support for this assumption, and are identical when the sample consists of small, medium, and large firms and of large firms alone. Our results also suggest that the larger the firm, the higher the optimal level of diversification. Panel data models are used to control for unobservable heterogeneity and potential endogeneity problems.