Factors influencing the alignment of technological diversification and firm performance

Abstract

Purpose Although scholars have paid considerable attention to the relationship between technological diversification and firm performance, research on this relationship has produced mixed findings. To reconcile these inconsistent findings, this study, thus, aims to revisit the performance effect of technological diversification by considering two organizational characteristics as crucial moderators, namely, firm size and financial slack. Design/methodology/approach To test the research hypotheses, the research sample covers manufacturing firms in the 2008 Standard & Poor (S&P) 500 index. Data regarding the characteristics and patent information of the sample firms were obtained from Compustat and the US Patent and Trademark Office. The hypotheses were tested by using hierarchical regression models. Findings In a sample of 168 S&P 500 manufacturing firms, this study finds that technological diversification has a positive effect on firm performance. The relationship between technological diversification and firm performance is also found to be positively moderated by firm size, financial slack and their configuration. Originality/value The findings of this study further suggest that firms should be aware that the effect of technological diversification on performance can be enhanced or hindered in specific contexts.