Corporate Diversification and Firm Performance

This exercise is important because it covers the concept of corporate diversification. The goal of this exercise is to identify when corporate diversification creates a competitive advantage and when it does not. You should be familiar with the corporate diversification and firm performance section of the text prior to completing the following questions.

The relationship between the type of diversification and overall firm performance

Multiple Choice

• takes on the shape of an inverted U so related diversification has the best performance.

• takes on the shape of a U where modest diversification has the worst performance.

• is positive, meaning that more diversification always leads to higher firm performance.

• is negative, meaning that more diversification always leads to lower firm performance.

• there is no relationship between the type of diversification and overall firm performance.