ABSTRACT
In the previous chapter, we discussed how related and unrelated diversification might create corporate value. During the 1980s and 1990s, many large, diversified conglomerates refocused their activities, seeking to improve their performance (Fan and Lang, 2000; Franko, 2004; Grant, 2002; Markides, 1992). But in refocusing their activities around their core competences to achieve synergies, they also increased the level of relatedness between their remaining businesses. As a rationale for this refocusing, most conglomerates likely would argue that the exploitation of relatedness produces higher corporate performance. Fan and Lang (2000) find that between 1979 and 1997, firms’ average relatedness level increased by approximately 10 percent, and Markides (1992) empirically demonstrates that during 1980-1988, reduced diversification levels was associated with greater shareholder value creation.
