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The effects of status on the performance of portfolio diversification strategies

Hyekyung Yu (SKK Business School, Sungkyunkwan University, Seoul, Korea)
Tohyun Kim (SKK Business School, Sungkyunkwan University, Seoul, Korea)

Journal of Strategy and Management

ISSN: 1755-425X

Article publication date: 1 January 2021

Issue publication date: 3 May 2021

338

Abstract

Purpose

This paper investigates how a firm's status moderates the performance of its investment portfolio diversification strategy. We combine the investment diversification literature with the organizational status theory, arguing that status would weaken the benefits of a specialist strategy in their niche industry of investments while strengthening the positive consequences of a generalist strategy across various industries.

Design/methodology/approach

We collected our data using the Securities Data Company (SDC) Platinum VentureXpert database. A fixed-effects spline regression analysis for 2,201 US venture capital firms between 1969 and 2016 was used to test for a nonlinear relationship between the level of portfolio diversification and firm performance.

Findings

We found that status differences exist in the performance of a specialist strategy but not in that of a generalist strategy. Our results indicate that portfolio specialization in fewer number of industries has little impact on low-status firms, whereas high-status firms suffer significantly lower IPO success rates. In contrast, above-median portfolio diversification was found to be beneficial to both high- and low-status firms.

Originality/value

We specifically identify the impact of status on the performance of investment diversification strategies, an area of research which has received little attention. Further, our findings provide some practical implications for managers making investment decisions between specialist and generalist investment strategies, given their status within the market. Implications for understanding the roles of firm status in portfolio diversification strategies are discussed.

Keywords

Acknowledgements

The authors would like to thank anonymous reviewers for their helpful suggestions and comments.

Citation

Yu, H. and Kim, T. (2021), "The effects of status on the performance of portfolio diversification strategies", Journal of Strategy and Management, Vol. 14 No. 2, pp. 246-258. https://doi.org/10.1108/JSMA-06-2020-0156

Publisher

:

Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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