Diversification and diffusion - A social networks and neo-institutional approach

Abstract

I examine the diffusion of a major aspect of firm strategy, diversification, among a population of Chinese listed firms during the period of 1991 to 2002. I propose that information dissemination and institutional isomorphism influence the diversification decision. Using a sample of 2734 observations during a 12 year period, I find that firms in the center of the network are more susceptible and infectious in diffusion. Moreover, diversification diffuses quickly among structurally equivalent firms in the network. From the results, I suggest that diversification is not only a response to economic and agency concerns, but also a function of the social context in which a firm is embedded.