Value Creation through Diversification
Value Creation through Diversification
Andreou, P. C., Louca, C., & Petrou, A. P. (2016). Organizational learning and corporate diversification performance. Journal of Business Research, 69(9), 3270-3284.
The article presents an investigation on the role played by organizational learning on corporate diversification. The study findings show that organizational diversification lowers shareholders’ value. However, diversification performance relies on recurrent and incremental experiences relating to the organization’s earlier diversification activity and its capability to operate in multiple-business segments.This supports the absorptive capacity theory of organizational learning.The writers reveal that single-businesses that diversify once show significant value reduction.On the other hand, multi-businesses thatdiversifyonly once do not show significant value reduction, and single or multiple-businesses that diversify many times show value creation.
The study evaluates a theoretical model that is based on the absorptive capacity perspective to reveal the effects of organizational learning to the impact of organizational diversification.Also, the authors have a sound knowledge in management and economics from Cyprus University of Technology and Durham University.This makes it a reliable article in handling the topic at hand. However, the research focuses more on single and multiple businesses, which makes it limited in the nature of its application. This research will be insightful in supporting the role played by organizational learning towards creating value in an organization. Learning gives a firm leverage towards diversification, which enables it to create value.
Cretu, R. F. (2012). Corporate governance and corporate diversification strategies. Revista de Management Comparat International, 13(4), 621.
The article highlights the role of managers in corporate diversification. The author notes that managers who double as shareholders are most likely to make decisions that can add value to other shareholders. He adds that ideal governance ensures that a firm reduces risks and allows for freedom. Good governance ensures integrity, transparency, and responsibility.Cretu goes on to show the link between corporate governance and diversification. He notes that the efficiency of the diversification strategies is dependent on corporate governance. Good managers can create value via diversification through synergic integration. Diversified organizations tend to have more managers because they have a role to play in creating value for the firm.
The article is based on literature review from various authors. Its scope is on the role played by organizational managers in creating value to an organization and their role in ensuring that diversification strategies achieve the desired objectives. It is a reliable source since the author obtains information from various sources through literature review. Additionally, the writer has vast knowledge in business studies, which makes the article a credible source. However, the resource has some limitations, especially since it focuses on corporate governance only. It is a fact that diversification of a firm may be influenced by other factors apart from management. This source will be critical in supporting the position that managers have a critical role to play in creating value to stakeholders via diversification of operations in a firm.
Rhéaume, L., & Bhabra, H. S. (2008). Value creation in information-based industries through convergence: A study of US mergers and acquisitions between 1993 and 2005. Information & Management, 45(5), 304-311.
The authors investigate the effects of mergers and acquisitions on value creation in the telecommunications’ industry. They use data on mergers and acquisition that took place between 1993 and 2005.The results reveal that the acquiring firms reached their targets within a very short period, and that acquisition strategies led to synergetic gains. However, organizations that dreaded high operating risks caused by mergers and acquisitions and pursued other diversification strategies did not record any significant change in shareholder value.
The authors focus on data obtained from the Securities Data Corporation Worldwide Mergers and Acquisitions database, which makes the article reliable. Furthermore, its reliability is enhanced by the experience of the authors. The writers are university professors from the University of Quebec, Canada and John Molson School of Business at Concordia University, Canada. However, the research is limited since the data used is from 1993 to 2005, which is too old to be relevant in the modern business environment. The article is significant is supporting the role played by mergers and acquisitions in creating valuethrough diversification.
Zhang, P. (2014). Understanding diversification strategy in venture capital market. Entrepreneurship Research Journal, 4(3), 277-296.
The article presents a study that was done to determine theeffect of diversification and specialization strategies on capital venture firms. The research shows that the nature of diversification influences a firm’s performance in the capital venture market. Specifically, related diversification is linked to improved organizational performance, and venture capitalists tend to prefer it than unrelated diversification.
In the study, the author uses the Pratt’s guide. The guide provides a database used to study the venture capital market. In the research, Zhang chooses three States for his analysis: New York, Massachusetts, and California. This makes the research limited in terms of scope. The sample of three states in insufficient to come up with substantial conclusions. Additionally, the study focuses on one industry. Therefore, it is possible that the other industries are not faced with similar circumstances, making the conclusions insufficient. However, the reliance on Pratt’s guide makes the source credible. In addition, the author is credited as a renowned author in economics. The article will be insightful in supporting the idea that the nature of diversification may influence the outcomes of diversification.It will help in highlighting the different forms of diversification and when they can be applied.
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