An analysis of diversification and firm performance

Diversification is an intriguing business strategy, which has dominated many economies since last century; however, the consequence of diversification remains a puzzle. Based on the majority of existing studies, the article hypothesizes that there is a negative relationship between the level of diversification and firm performance in China. But the empirical evidence does not support the hypothesis, finding that, generally, firm performance is positively related to the level of diversification even the evidence is limited. Most important insight is that it proves the relationship between diversification and firm performance might not be monotonic according to the groupspsila analysis.