To fit in or stand out? How optimal distinctiveness in technological diversification affects firm performance

Abstract

Previous research has observed technological diversification from a strategic viewpoint and regarded it as a strategy used by firms to differentiate themselves from competitors. This perspective, however, overlooks the fact that firms' strategies can also be understood as conformity to institutional pressure to gain legitimacy. In order to study the technological diversification–firm performance relationship from a more comprehensive viewpoint, this paper starts from a strategic balance perspective and investigates how technological diversification conformity enhances firm performance. Using a unique dataset of Chinese listed firms' patenting activities from 2003 to 2014 and adopting ordinary least squares (OLS) regression, we produce empirical findings that reveal a curvilinear (inverted U-shaped) relationship between firms’ conformity in technological diversification and their performance. Our results further delineate the boundary conditions that influence this relationship. We find that firm age positively moderates the relationship, that is the conformity-performance relationship is steeper with the older firms. Moreover, the result suggests that state ownership negatively moderates the relationship, that is, the relationship is flatter when firms are controlled by the state.