Diversification and Survival of Young, Small Firms

Abstract

Young firm diversification is examined investigating whether diversifying firms have higher survival chances. We use extensive longitudinal data containing information on firms’ characteristics and environmental conditions, and their evolution over time. Firms that are born diversified are more likely to survive, suggesting that pre-entry capabilities play an important role in early diversification. Firms diversifying after birth are more likely to survive the older they are at the moment of diversification, suggesting that early diversification may be associated with entry mistakes by firms that have not yet accumulated the required resources and capabilities to diversify successfully.