Diversification Experiences and Firm Performance in Knowledge-Intensive Industries: The Moderating Role of Absorptive Capacity

Abstract

ABSTRACTIn this study, we examine the moderation effect of absorptive capacity on the performance consequences of diversification experiences. We suggest that absorptive capacity positively moderates the performance effects of product and international diversification experiences and those of unrelatedness in product and international diversification experiences. An empirical analysis conducted using a longitudinal dataset of Indian firms, from knowledge-intensive manufacturing sectors, for the period 2008–2018, broadly supports our arguments. Findings imply that firms with superior absorptive capacity can acquire and leverage knowledge from their diversification experiences effectively and mitigate the risks of negative transfer associated with unrelatedness in diversification experiences. Findings contribute to the organizational learning literature by examining the role of absorptive capacity in enabling performance outcomes of diversification experiences.