Value enhancing learning in diversification experience

Abstract

This paper analyses whether and how organizational learning from diversification experience affects diversification value. Three main findings are reported. First, we find a U-shaped relationship between diversification value and diversification experience. Second, higher similarity in industries of diversifications results in higher diversification value. Finally, value of diversification and temporal interval between diversifications is related an inverted U-shaped curve. In the extension analysis, the paper demonstrates that external learning from others’ experience also affects value of diversification in a cubic pattern. Taken together, the study illustrates the effects learning from both own and population experience on the cross-sectional variance of diversification value.