Abstract

A main interest among strategists has focused on the character of an economically efficient corporate strategy. This article examines the concept of an economically efficient corporate strategy and outlines an explanation for the superior performance of related diversifiers. This article is based on a study of the combined effects of R&D activity and industry specialization on economic performance. The study involves 361 New York and American Stock Exchange companies during 1980-1985. The analysis centers on two questions: What are the effects of the level of R&D activity and industry specialization on abnormal returns? What are the effects of the level of R&D and industry specialization on systematic risk? The results suggest that increased R&D and reduced industry specialization are critical factors underlying superior economic performance.