Transformations  in
Business & Economics

What about the Effects of Increasing Diversification in Response to Environmental Transformations? The Case of Spain
Almudena Marinez-Campillo, Roberto Fernandez-Gago

ABSTRACT. Previous empirical studies that analyze the impact of diversification on firm performance in the Spanish economy are scarce and contradictory, which impedes the generation of widely accepted conclusions. This paper aims to provide additional information on the nature of the diversification-performance relationship in Spain during the period 1997-2001, which is characterized by important transformations in the competitive environment and hence in the strategic tendency of firms. After using Heckman’s two-stage method on a sample of 236 large Spanish firms, results indicate that increasing diversification across the low to moderate levels had a positive and significant effect on firm growth and profitability over this period.

By comparing these results with those previously obtained for Spanish firms, it may be concluded that the level of diversification and their consequences vary with time and contextual changes.

KEYWORDS: environmental transformations, corporate diversification, firm growth, firm profitability, Spain.

JEL classification: L10, L25, L35.