Abstract
According to prevailing theory, firms diversify in response to excess capacity of factors that are subject to market failure. By probing into the heterogeneity of these factors, we develop the corollary that firms that elect to diversify most widely should expect the lowest average rents. An empirical test, with Tobin's q as the measure of rents, is consistent with this theory.
Keywords
EconomicsTobin's qEconomic rentDiversification (marketing strategy)Monetary economicsFinancial economicsMicroeconomicsBusiness
Related Publications
From Entry Barriers to Mobility Barriers: Conjectural Decisions and Contrived Deterrence to New Competition*
I. Interdependence and conjecture in entry, 242.—II. Barriers to mobility, 249.—III. Diversification by established firms and intergroup mobility, 257.—IV. Conclusion, 261.
The link between resources and type of diversification: Theory and evidence
Abstract In this paper we theoretically and empirically investigate the idea that firms diversify in part to utilize productive resources which are surplus to current operations...
Strategic assets and organizational rent
Abstract We build on an emerging strategy literature that views the firm as a bundle of resources and capabilities, and examine conditions that contribute to the realization of ...
A Historical Comparison of Resource-Based Theory and Five Schools of Thought Within Industrial Organization Economics: Do We Have a New Theory of the Firm?
A resource-based approach to strategic management focuses on costly-to-copy attributes of the firm as sources of economic rents and, therefore, as the fundamental drivers of per...
Managerial Resources and Rents
This article analyzes the role of top management as a key resource in obtaining sustained, competitive advantage for thefirm. The nature of managerial skills is examined and lin...
Publication Info
- Year
- 1988
- Type
- article
- Volume
- 19
- Issue
- 4
- Pages
- 623-623
- Citations
- 935
- Access
- Closed
External Links
Social Impact
Altmetric
PlumX Metrics
Social media, news, blog, policy document mentions
Citation Metrics
935
OpenAlex
Cite This
Cynthia A. Montgomery,
Birger Wernerfelt
(1988).
Diversification, Ricardian Rents, and Tobin's q.
The RAND Journal of Economics
, 19
(4)
, 623-623.
https://doi.org/10.2307/2555461
Identifiers
- DOI
- 10.2307/2555461