1. How does firm diversification impact innovation?
- Author
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Orlando, Beatrice, Renzi, Antonio, Sancetta, Giuseppe, and Cucari, Nicola
- Subjects
DIVERSIFICATION in industry ,TECHNOLOGICAL innovations ,RESEARCH & development ,STRATEGIC planning ,STOCK exchanges - Abstract
This study sheds light on the relationship between business diversification and innovation. A diversification strategy is both a driver of sunk costs and strategic slack. Strategic slack is a valuable reserve of knowledge, usable to foster innovation. Using linear models, we explore the interplay between research and development (R&D) and organisational slack in large and diversified companies listed on the Euronext 100 Index. We consider the diversification pattern over time, and its interactions with the following three categories: sunk costs, slack resources, and R&D. The results show an antithetic effect of diversification and slack on R&D expenditures. In contrast to unabsorbed and potential slack, diversification and sunk costs hinder innovation. However, diversification is a huge source of strategic slack and, thus, has a positive effect on innovation, indirectly. [ABSTRACT FROM AUTHOR]
- Published
- 2018
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