...Longitudinal Study of the Cause and Consequences of Changes in Diversification in the U.S. Pharmaceutical Industry 1977-1986 Author(s): Charles W. L. Hill and Gary S. Hansen Reviewed work(s): Source: Strategic Management Journal, Vol. 12, No. 3 (Mar., 1991), pp. 187-199 Published by: Wiley-Blackwell Stable URL: http://www.jstor.org/stable/2486592 . Accessed: 16/09/2012 06:40 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. . Wiley-Blackwell and John Wiley & Sons are collaborating with JSTOR to digitize, preserve and extend access to Strategic Management Journal. http://www.jstor.org Strategic Management Journal, Vol. 12, 187-199 (1991) S A LONGITUDINALTUDY OF THE CAUSE AND CONSEQUENCESOF CHANGESIN IN DIVERSIFICATION THE U.S. PHARMACEUTICAL INDUSTRY1977-1986 W a CHARLES . L. HILL nd GARYS. HANSEN Graduate School of Business Administration, University of Washington, Seattle, Washington, U.S.A. The paper hypothesizes that diversification by firms based in the pharmaceutical industry during the 1977-86...
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...Diversification patterns and performance of large established Japanese firms Tatsuo Ushijima* Aoyama Gakuin University Graduate School of International Management Shibuya 4-4-25, Shibuya-ku Tokyo 150-8366 JAPAN Yoshitaka Fukui Aoyama Gakuin University Graduate School of International Management Shibuya 4-4-25, Shibuya-ku Tokyo 150-8366 JAPAN * Corresponding author Tel: +81-3-3409-8544; Fax: +81-3-3409-4167 E-mail: ushijima@gsim.aoyama.ac.jp This version: December 11, 2004 Acknowledgement: We would like to thank seminar participants at the University of Tokyo and the 22nd Nikkei conference on firm behavior for their helpful comments. Remaining errors are ours. Financial supports from the Graduate School of International Management at Aoyama Gakuin University are greatly appreciated. ABSTRACT This article examines the industry diversification of the largest Japanese manufacturers in 1973-98. Results show that 118 sample firms steadily increased diversification, a trend continued from earlier periods. Nevertheless, the relatedness of their constituent businesses gauged based on the Input-Output table remained high and stable throughout the study period. Econometric analysis reveals that firms pursuing the “constrained diversification” exploiting inter-business links centered on the core industry segment tend to achieve a higher profitability than firms engaged in the “linked diversification” exploiting links distant from the core. JEL classification: L23; L25; L29 Keywords:...
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...choice of direction for the firm as a whole and the management of its business or product portfolio. Answer: T (pp.164-165) 2. Corporate parenting is the coordination of cash flow among units. Answer: F (p.165) 3. The most widely pursued corporate directional strategies are those designed to achieve growth. Answer: T (pp.165-166) 4. A merger is a transaction involving two or more corporations in which stock is exchanged, but from which only one corporation survives. Answer: T (p.166) 5. A strategic alliance is a partnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial. Answer: T (p.166) 6. The two basic growth strategies are concentration and strategic alliances. Answer: F (p.166) 7. Vertical integration is going backward on an industry’s value chain. Answer: F (p.167) 8. Vertical integration is the degree to which a firm operates vertically in multiple locations on an industry’s value chain from extracting raw materials to manufacturing to retailing. Answer: T (p.167) 9. Forward integration is often more profitable than backward integration. Answer: F (p.167) 10. BP Amoco and Royal Dutch Shell are examples of fully integrated firms because they internally make 100% of their key supplies and completely control their distributors. Answer: T (p.168) 11. With taper integration, a firm internally makes 100% of its key supplies and completely control...
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...Sam’s Clubs GLOBAL INDUSTRY ANALYSIS - CASE STUDY Wal*Mart Stores, Inc. a presentation p 1 Sam Walton Founder of Wal*Mart Stores, , Inc. Performance of Wal*Mart 20-year average return on equity of 33% Compound average sales growth of 35% Market value = $57.5 billion $ Wal*Mart Sales per square foot $300 Industry average $210 WAL MART Background 2 Year 1988 CEO: David Glass COO: Don Soderquist How to sustain the company’s phenomenal performance? 1987 Net sales Net Income Number Of Stores Number Of Stores Discount Stores Sam’s Wholesale Clubs Supercenters 1,114 84 N.A. 1,953 419 68 15,959 628 1993 67,345 2,333 WAL MART Background 3 Number of Stores (1994) 0 500 1000 1500 2000 Hypermarkets Warehouse Clubs Warehouse Outlets Wal*Mart Stores WAL MART Background 4 Where Emerged in the U.S. g When Mid-1950s Top 10 discounters in 1962 Wal*Mart remained only The industry became more concentrated Discount store companies p operated 50 or more stores accounted for 82% CR5 (1986) 38% 62% CR5 (1993) 29% 71% WAL MART 5 Discount Retailing Discount Retailing Industry Sa ales Grow wth 30 20 10 0 25% 9% 11.2% 7% WAL MART 6 Discount Retailing Comparative Pricing Study, 1993 WAL MART 7 Discount Retailing Overall Performance of Discounters WAL MART 8 Discount Retailing Year 1945 Ben Franklin franchise store In 1950s 15 stores Year 1962 Wal*Mart Discount City store Year 1969 18...
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...1598-2769 Journal of International Economic Studies Vol. 12, No. 1, June 2008 3 Determinants and Consequences of Non-Interest Income Diversification of Commercial Banks in OECD Countries* 1) Joon-Ho Hahm Professor, Graduate School of International Studies, Yonsei University jhahm@yonsei.ac.kr This paper studies determinants and consequences of the changing income structure of commercial banks in the era of financial conglomeration. Utilizing a dataset of 662 relatively large commercial banks in 29 OECD countries from 1992 to 2006, we find that banks with relatively large asset sizes, low net interest margins, high impaired loan ratios, and high cost-income ratios tend to exhibit higher non-interest income shares. As for macroeconomic factors, banks in countries with slow economic growth, a stable inflation environment, and welldeveloped stock markets tend to show higher non-interest income shares. Second, we investigate the consequences of non-interest income expansion on bank profitability and risks. While the positive effects on profit and capital adequacy seem to become weaker under the consideration of macroeconomic factors and endogeneity problems, the adverse impact on profit variability remains robust. Overall, these findings suggest that expanding toward non-interest income may not produce desired income diversification effects, and it does not necessarily imply a shift toward superior return-risk frontiers. Keywords: Commercial Bank, Non-interest Income...
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...value-destroying bank acquisitions. We find that diversifying bank acquisitions earn significantly negative announcement period abnormal returns (AR) for bidder banks whereas focusing acquisitions earn zero AR. We then find that corporate governance variables (such as CEO share and option ownership and a smaller board size) in the bidding bank are less effective in diversifying acquisitions than in focusing acquisitions. These results are robust to the inclusion of the usual control variables. Ó 2002 Elsevier Science B.V. All rights reserved. JEL classification: G21; G34 Keywords: Banks; Bank acquisitions; Corporate governance 1. Introduction Several empirical studies have documented a negative relation between firm performance and the level of diversification in a firm’s lines of business in the 1980s (see Corresponding authors. Address: Carroll School of Management, Boston College, Chestnut Hill, MA 02167, USA. Tel.: +1-618-453-2459; fax: +1-618-453-7961. Tel.: +1-617-552-3944 (H. Tehranian). E-mail address: mcornett@cba.siu.edu (M.M. Cornett). 0378-4266/02/$ - see front matter Ó 2002 Elsevier Science B.V. All...
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... time-‐weighted average return-‐ignoring the quarter-‐to-‐quarter variation in funds under management; 2. Mutual funds are required to publish this as a measure of past performance. -‐ Dollar-‐weight Return 1. Similar to a capital budget problem 2. Accounting for varying amounts of capital under management form quarter to quarter 3. Less than time-‐weighted return of 7.19% -‐ Risk free assets: an asset with a certain rate of return (often taken to be short term T-‐bills) -‐ Scenario analysis: l Determine a set of relevant scenarios and associated investment outcomes and assigns probability to each l l -‐ Compute mean return and variance However, sometimes it is hard to assign probabilities Time series analysis: l l Use historical data, treat each observation as equally likely Compute mean and variance -‐ -‐ Normal distribution, ri~N(E(ri), Oi) Two special properties: l The return on...
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...JBR Paper June 27, 1999 DIVERSIFICATION AND MARKET ENTRY CHOICES IN THE CONTEXT OF FOREIGN DIRECT INVESTMENT Ram Mudambi University of Reading and Case Western Reserve University Susan McDowell Mudambi John Carroll University Address for correspondence: Dr. Susan McDowell Mudambi Department of Management, Marketing and Logistics Boler School of Business John Carroll University University Heights OH 44118 Phone: FAX: Email: (216) 397-3094 (216) 397-1728 smudambi@jcu.edu DIVERSIFICATION AND MARKET ENTRY CHOICES IN THE CONTEXT OF FOREIGN DIRECT INVESTMENT Abstract Multinational enterprises consider many factors when making decisions in the context of foreign direct investment (FDI). In deciding what to produce, the multinational enterprise (MNE) must decide whether to diversify or to concentration on its main line of business. This paper offers insights into influences on this choice, and identifies a number of conditions under which diversification is more likely to be chosen. Factors affecting the foreign entry mode decision are also analyzed. The international business literature has generally treated these strategic choices as independent. This paper introduces a more realistic selection model, in which the diversification choice and the entry mode choice are made sequentially and are therefore related. The model is tested using a data set of FDI into the United Kingdom by MNEs in engineering and related industries. The analysis indicates a strong relationship...
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...history (2), suggesting that rather than being an evolutionary dead end, polyploidy is a route to evolutionary success. A recent study (3) confirmed the ubiquity of polyploidy, with about 35% of vascular plant species being recent polyploids (“neopolyploids,” having formed since their genus arose), representing 15% of speciation events in flowering plants and 31% in ferns. It remains unknown, however, whether the abundance of polyploids is a consequence of higher diversification rates following polyploidy or of frequent polyploid formation. We estimated diversification rates of neopolyploids relative to their diploid congeners. We compiled a data set of angiosperm (n = 49) and seed-free vascular plant (SFVP, including ferns and lycophytes; n = 14) generic-level groups in which ploidy levels could be estimated from cytological and phylogenetic data (4). Over 500 ploidy shifts were inferred with a probabilistic model of chromosome number evolution that accounts for aneuploid and polyploid transitions but not diversification rate differences (5). This allowed us to label all descendants of a polyploidization event as neopolyploids, even when lacking chromosome data. heteroploid speciation, the difference in speciation rates between diploids and polyploids was no longer significant (P > 0.1). Nevertheless, the...
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...10.1111/j.1467-6486.2007.00719.x A Modern Resource Based Approach to Unrelated Diversification Desmond W. Ng Texas A&M University abstract For over three decades, the questions of how and why an organization diversifies into related and unrelated businesses have drawn the attention of strategy scholars. However, explanations of unrelated diversification have been less than clear. A conceptual model of unrelated diversification is thus proposed. In drawing on Penrose’s (1959) resource based approach, unrelated diversification is explained by an organization’s ‘three pillars’, which consist of its strength of dynamic capabilities, absorptive capacity, and weak ties. The role of the three pillars is to discover new resource applications or uses in conditions of market failure that are characterized by ‘incomplete’ markets. A novel feature of this model is that an organization can diversify more broadly than predicted by Penrose (1959) and other modern resource-based approaches (Teece et al., 1997). Furthermore, unrelated diversification can be beneficial. This study also offers suggestions to measure the three pillars; its contributions and implications are discussed as well. INTRODUCTION The questions of how and why an organization diversifies into related and unrelated businesses have been a central focus of strategy research (Palich et al., 2000; Rumelt, 1974; Teece, 1982). These diversifications have been defined by the degree to which an organization’s products and services draw...
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...the firm resources, and hence the distribution of its output among industries. Corporate businesses always pose the question about their diversification strategies, and the advantages and disadvantages associated. Many companies became bothered by putting all its eggs into one basket; therefore companies had to come up with certain strategies. Conglomerates are companies that follow the diversification strategies. Diversification is reducing risk by investing a number of assets. In the 1950s, diversification gave companies a boost, while still increasing into today. Fortune 500 companies are best described as conglomerates. These conglomerates found out by taking risk in a single stock they would be manifested to index movements and stocks relative movements. Portfolio models in corporate business are looked at as either vertical or horizontal. Vertical is expanding the product line and horizontal is integrating with the supply chain. Companies diversify to grow, to utilize existing resources or to escape their environments. Advantages could include achievement on the economic scale and to expand product offering while disadvantages could be difficulty coordinating the business. Another problem with diversifying can be the manager lack of knowledge about the business. Successful strategies of managers are developing skills in diversification. They must also have well-developed beliefs how to diversify in order to achieve synergies. To achieve synergy you must exploit economic...
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...of view of the Chairman of Blockbuster, H. Wayne Huizenga. As Chairman, he is director, decision maker, leader, manager and executor of the company and thus, in the position to solve and decide upon the dilemmas faced by Blockbuster regarding the issues on the diversification of the company. MAJOR PROBLEM From 1985 to 1992, Blockbuster has managed to become a video-rental giant. But by 1993, Blockbuster through its Chairman, H. Wayne Huizenga was seeking a new image, that of a multimedia company. Steps were taken towards this goal including sponsorships of concert tours, music retailing, television and film production and operating indoor children’s play centers. These diversification strategies, however, did not escape from several criticisms and by the fall of 1993, Chairman Huizenga had enough reasons to rethink of what he wanted for the company. The myriad of difficult decisions concerning Blockbuster’s future can be traced to the dramatic changes in the company’s strategic context. This and Huizenga’s hurried and scattered approach to diversification had put the company into danger. How should Chairman Huizenga address the criticisms that arise from his abrupt and scattered decisions on the diversification of Blockbuster? CASE FACTS Three factors that make up strategic context which could have helped Huizenga understand the opportunities and constraints set before the company are: (1) history of Blockbuster, (2) the environment in which Blockbuster operates,...
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...___________________________________________________________________________ 1. You are considering investing $1,000 in a T-bill that pays 0.05 and a risky portfolio, P, constructed with 2 risky securities, X and Y. The weights of X and Y in P are 0.60 and 0.40, respectively. X has an expected rate of return of 0.14 and variance of 0.01, and Y has an expected rate of return of 0.10 and a variance of 0.0081. If you want to form a portfolio with an expected rate of return of 0.11, what percentages of your money must you invest in the T-bill and P, respectively? A. 0.25; 0.75 B. 0.19; 0.81 C. 0.65; 0.35 D. 0.50; 0.50 E. cannot be determined 2. You are considering investing $1,000 in a T-bill that pays 0.05 and a risky portfolio, P, constructed with 2 risky securities, X and Y. The weights of X and Y in P are 0.60 and 0.40, respectively. X has an expected rate of return of 0.14 and variance of 0.01, and Y has an expected rate of return of 0.10 and a variance of 0.0081. If you want to form a portfolio with an expected rate of return of 0.10, what percentages of your money must you invest in the T-bill, X, and Y, respectively if you keep X and Y in the same proportions to each other as in portfolio P? A. 0.25; 0.45; 0.30 B. 0.19; 0.49; 0.32 C. 0.32; 0.41; 0.27 D. 0.50; 0.30; 0.20 E. cannot be determined 3. You are considering investing $1,000 in a T-bill that pays 0.05 and a risky portfolio, P, constructed with 2 risky securities, X and Y. The weights of X and Y...
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...b L,FRE Is diversification from small tractors to big tractors a good idea for Deere's stockholders? Deere's stockholders can diversiS, more cheaply themselves now. For example, they can buy CAT shares. The two markets (small and big tractors) are cyclical. However, the big tractor market is more cyclical. Hence Deere should not use its current cost of capital for making decisions. This is important since, if alarge tractor is sold for S100, an additional revenue of $65 is generated in the first three Years' r\ ^ ^'?t aLl""'' tur-'a ' -''*2 In fact, since the appropriate discount raG is higher than before, future profits are less valuable in the large tractor market than in the small tractor market. An additional factor is that Deere's parts are not proprietary---- hence future revenue (profits) from parts are not as high for Deere as for CAT. Conclusion: Deere should price closer to the 'myopic' price in the large tractor market than in the small tractor market. Cash flows: The cash flows in the small and large tractor markets are not perfectly correlated, even thought both markets are cyclical. Hence diversification from small to large tractors will smooth out cash flows----- reduces the risk to Deere's bondholders (lowers the interest rate demanded by bondholders). This could add value to Deere. 4\^^X L,*) S-r, 4 t or"/o hrt th"Al Fa"rfr \ ( r. vrwF^e., I -{W I t Explain the role of spare parts on...
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...CORPORATE STRATEGY AND DIVERSIFICATION Definition of Corporate Strategy Business Strategy addresses the question How should a firm or business compete with sustained advantage in a given competitive environment? Corporate Strategy addresses the question What should be the appropriate scale and scope of the enterprise? Corporate Strategy therefore influences how large and how diversified a firm should be. The definition of a business determines to a large extent the Corporate strategy. A firm can be a single business firm operating in a single industry environment with a fairly apparent definition. On the other hand a large and widely diversified firm with many different businesses each operating in a different industry environment, faces the challenge of defining each of its various businesses as well as developing an overall definition. It is easier for Microsoft to define its business than it is for G.E. or the Tata group to develop an overall business definition. Why do Firms Diversify. 1) To Grow. Growth is an implicit objective in nearly all organisations. Stock markets tend to reward growing companies. Managers find growth extremely attractive because it hold out the prospects of increased earnings for the firm leading to increased compensations for themselves. They also see the acquisition of new knowledge as instrumental in improving their self actualisation prospects. 2) Fuller utilisation of Resources and Capabilities. Firms find that they have un utilised...
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