Diversification in small firms: Does parental influence matter?

Diversification is a common goal for many small firms, yet research examining whether small firm ownership structure influences their use of the tactic is limited. As such, this paper provides one of the first empirical investigations of the subject by examining whether the presence of a corporate parent positively influences the likelihood that small firms will utilize diversification. Results indicate that small firms with corporate parents are more likely to use both related and unrelated diversification than comparable firms that are independently owned. Such findings are noteworthy because diversification may be more beneficial for small, independently owned firms, yet small, subsidiary firms appear to be better able to utilize diversification. Implications of these findings are discussed.