Portfolio Diversity Research Articles

The relationships between the internationalization of alliance portfolio diversity, individual incentives, and innovation ambidexterity: A microfoundational approach

The present paper seeks to unveil the influence of the decision to ally with partners of diverse types and from different geographical locations (i.e., the internationalization of alliance portfolio diversity) on the ability of firms to balance radical and incremental innovation efforts (i.e., innovation ambidexterity). We address this goal by embracing the microfoundational approach since we recognize that, eventually, the ability/willingness of a firm's employees allow leveraging the opportunities of strategic alliances. With this in mind, it is also scrutinized the contingent effects of the adoption of motivation-enhancing human resource management (HRM) practices, as individual incentives (financial and non-financial), on the relationship between the internationalization of alliance portfolio diversity and innovation ambidexterity. Results reveal that the internationalization of alliance portfolio diversity has an inverted U-shaped effect on innovation ambidexterity and that the adoption of financial incentives positively moderates (threshold shift) this effect. Instead, no conclusive results may be provided concerning the moderating effect of the adoption of non-financial incentives.

Alliance Portfolio Diversity and Market Performance: The Moderating Role of Strategic Orientation

Acknowledging existing ambiguity about the performance consequences of diversity within a firm’s alliance portfolio, this study offers a more nuanced perspective on the multidimensional construct a...

The link between SMEs alliance portfolio diversity and top management’s entrepreneurial and alliance orientations

To be able to survive and grow in twenty-first century global network economies, small-to-medium-sized enterprises (SMEs) strive to develop various types of interfirm alliances that provide them with bundles of resources and network security. Therefore, creating and configuring a beneficial and diverse alliance portfolio has become an important strategic issue for SMEs. The purpose of this article is to investigate how the entrepreneurial orientation and alliance orientation of the SMEs’ top managements lead to functional diversity of alliance portfolio configurations. Based on resource dependency and upper echelons theories, this study develops a model using survey data from 230 managers of Australian SMEs. The results suggest a significant link between the SME top management’s strategic orientations and the diversity of their alliance portfolios. When both entrepreneurial orientation and alliance orientation are high, the firms prefer to form portfolios that are functionally diverse. On the other hand, when either one or both strategic orientations are low, firms prefer to form portfolios that specialize on one of the functional areas like operations, logistics, marketing, or strategic management.

A Transaction Cost Perspective of Alliance Portfolio Diversity

AbstractAlliance portfolio diversity (APD) helps firms access diverse capabilities and knowledge. APD can also increase transaction costs, but it is unknown whether and how transaction cost theory’s (TCT’s) insights about hierarchical integration operate at the portfolio level. We adapt TCT to the portfolio level to suggest that the transaction costs from APD encourage integration into alliance partners’ industries, and we introduce the concept of shared‐specific investments to pinpoint one source of transaction costs within portfolios and predict which industries will be integrated. Using data from 1996–2013 on S&P 500 firms, we find evidence in support of our theorising. Juxtaposing results with other theoretical perspectives suggests that TCT offers complementary insights about which activities to perform in the firm versus the alliance portfolio.

Practical Applications of Preparing a Multi-Asset-Class Portfolio for Shocks to Economic Growth

<h3>Practical Applications Summary</h3> In <b>Preparing a Multi-Asset Class Portfolio for Shocks to Economic Growth</b>, which appeared in the 2019 Multi-Asset Special Issue of <b><i>The Journal of Portfolio Management</i>, Eugene Podkaminer</b>, <b>Wylie Tollette </b>(both of <b>Franklin Templeton Investments</b>), and <b>Laurence Siegel</b> of the <b>CFA Institute Research Foundation </b>assert that, since the global recession of 2007–2009, economic growth has become the main driver of many investment strategies, at the expense of portfolio diversity. This higher-risk approach to asset allocation has paid off, but will not always. Taking a historical perspective on economic growth can combat the dangers of recency bias in investing, and encourage investors to prepare for economic shocks through diversification despite the strong recent performance of equities and other related asset types. <b>TOPICS:</b>Portfolio construction, tail risks, financial crises and financial market history, emerging

Patent portfolio diversity and firm profitability: A question of specialization or diversification?

The relationship between patent portfolio diversity and firm profitability is conceptually opaque and empirically equivocal. We contribute to the literature with a systematic analysis of this relationship by carrying out an empirical investigation based on a sample of 391 international firms. We generate data for patent portfolio diversity at the level of sections, classes, and sub-classes of the International Patent Classification. As moderators of this relationship, we test non-self forward citations (revealing a stream of knowledge between the firm and the outside) and non-self backward citations (assessing the firm's absorptive capacity). Findings highlight how the relationship between patent portfolio diversity and profitability is non-linear and differentially moderated by both the level of non-self forward and backward citations. Accordingly, implications for theory development and managerial decision making are discussed.

The Impact of Industry–University–Research Alliance Portfolio Diversity on Firm Innovation: Evidence from Chinese Manufacturing Firms

Innovation is a key factor for the sustainable development of firms. Although it has been a prevalent phenomenon that firms maintain multiple industry–university–research (I–U–R) alliances simultaneously to generate innovation, there is a lack of explorations in this phenomenon in extant literature. In this study, we introduce a new construct, I–U–R alliance portfolio, and investigate the impact of its diversity on a focal firm’s innovation performance. Hypotheses are proposed and examined using datasets of 176 listed firms in the Chinese manufacturing industry. We find that I–U–R alliance portfolio diversity exerts a positive effect on a focal firm’s innovation performance and a firm’s absorptive capacity positively moderates this relationship. Furthermore, we contend that with increasing levels of government financial support, the positive relationship between I–U–R alliance portfolio diversity and firm innovation performance is strengthened. Finally, our findings provide several theoretical and practical implications for the I–U–R alliance portfolio and firm innovation.

Thirty years of change and the future of Alaskan fisheries: Shifts in fishing participation and diversification in response to environmental, regulatory and economic pressures

AbstractHeterogeneity in human responses and decision‐making can contribute to the resilience of social–ecological systems in the face of environmental, political and economic pressures. In fishery systems worldwide, the ability of harvesters to maintain a diverse portfolio of fishing strategies is important for building adaptive capacity. We used a case‐study approach to examine the complexity of factors that inhibit or promote diversification in fisheries of Alaska, one of the major fishing regions of the world. Through a combination of harvest records and literature review, we explored shifts in participation and portfolio diversity in Alaskan fisheries over three decades. The four case‐studies examined the responses of fishers, fleets and communities to multiple, intersecting pressures, including biological declines, market and price dynamics, fishery privatization and the 1989 Exxon Valdez oil spill. These cases illustrate how stressors acting at multiple scales can encourage or constrain opportunities for diversification, and that these opportunities may be spread inequitably across participants. Overall, we found evidence for reduced participation and increasing specialization in Alaskan commercial fisheries. While numerous factors explain these trends, policies like individual quota systems and the increasing cost of entry into fisheries are forcing consolidation at local to regional scales. A portfolio approach to managing fisheries that reduces barriers to diversification and includes broad representation of resource users and communities in management may help to maintain opportunity and choice for fishers.

Goal-based water trading expands and diversifies supplies for enhanced resilience

In response to rising water scarcity concerns around the world, water utilities are expanding and diversifying their water supply portfolios, including attempting to value and reuse every drop throughout the water cycle. This transition is creating new hybrid infrastructure systems that combine centralized and decentralized sources at various scales. To help strategize and manage these emerging hybrid systems, we introduce a flexible goal-based water-trading framework using a combination of regulatory and market incentives. We apply this framework in a simulation of the San Francisco Bay Area, and test the effects of policy parameters, local preferences and collaboration between utilities. Results show that the option of engaging in an open trading scheme can lead to a more strategic and holistic path to higher regional resiliency through increased diversity in water portfolios, at lower costs than if utilities were tasked with pursuing goals independently. Highest benefits are observed when utilities cooperate in the exchange of information, which highlights the importance of transparency and trust operating in conjunction with regulatory and market forces. Water utilities worldwide are diversifying their portfolios of water supplies to smooth growing variation in water availability. This simulation finds that the option of engaging in an open water-trading scheme in the San Francisco Bay Area could promote regional resiliency and lowers costs.

Greater adaptivity or greater control? Adaptation of IOR portfolios in response to technological change

This paper addresses the question of how firms accomplish the strategic task of adapting their entire set of IORs (interorganizational relationships) to changing environmental conditions. To study this, we move beyond the focus on collaboration with individual partners (the dyadic perspective) that has been the dominant emphasis in the literature until now. Instead, we view the firms’ portfolios through the lens of the different modes of IOR engaged in (licensing agreements, non-equity alliances, venture capital investments, minority investments, joint ventures, and mergers & and acquisitions). We study the role of environmental change within the high-tech setting of the bio-pharmaceutical industry and distinguish between industry technological change and firm-specific technological change. In doing so, we rely on prospect theory to theorize how firms’ perceptions of environmental change in terms of a looming loss or a potential gain affect their risk-bearing, how this leads them to adjust their IOR portfolio diversity, and how these adjustments get implemented at the mode level. Whereas most of our hypotheses were confirmed by the study, a key unexpected finding was that firms respond to both types of technological change through stronger forms of adaptation than theoretically anticipated. Firms adapt to industry technological change through an increase in the diversity of their portfolio of IORs and by churning it up, which leads to a loosening of control at the individual mode level but greater adaptivity at the portfolio level. When facing firm-specific change instead, they adapt by reducing portfolio diversity, while cutting back on collaboration across five out of the six modes. Our findings both contribute to the literature on organizational adaptation, interfirm collaboration, and IOR portfolios and provide a greater behavioral understanding of network change.

Beyond Information Recall

Multiple-choice questions have an undeserved reputation for only being able to test student recall of basic facts. In fact, well-crafted mechanically gradable questions can measure very sophisticated cognitive skills, including those engaged at the highest level of Benjamin Bloom’s taxonomy of outcomes. In this article, I argue that multiple-choice questions should be a part of the diversified assessment portfolio for most philosophy courses. I present three arguments broadly related to fairness. First, multiple-choice questions allow one to consolidate subjective decision making in a way that makes it easier to manage. Second, multiple-choice questions contribute to the diversity of an evaluation portfolio by balancing out problems with writing-based assessments. Third, by increasing the diversity of evaluations, multiple-choice questions increase the inclusiveness of the course. In the course of this argument, I provide examples of multiple-choice questions that measure sophisticated learning and advice for how to write good multiple-choice questions.

Geographical Diversity of Alliance Portfolio and Firm Innovation: The Roles of Resource Characteristics and Governance Structures

This paper explores how geographical diversity of an alliance portfolio benefits resource-based firm innovation. We propose that there are inverted U-shaped relationships between geographical diversity of an alliance portfolio and a firm’s radical and incremental innovation. In addition, resource characteristics and alliance governance structures are considered as important moderators between geographically diverse alliances and innovation. Relevant resources of alliance partners help focal firms to acquire valuable resources from different locations, thus improving organizational capabilities and achieving innovation. Governance structure choices concentrate on opportunism and transaction cost in coordinating resource sharing and recombination activities, which determine focal firms’ cost of knowledge management and then innovation outcome. Our research could advance the literature on alliance portfolio diversity by studying how firms use their alliance portfolio from diverse locations to recombine resources and then to enhance innovation, which remains less explored.

Diversity in airline alliance portfolio configuration

Alliances in the airline industry operate as a basic strategy to stimulate competition and both the number and the types of alliances have increased over time. Each airline maintains alliances simultaneously with a variable number of partners. The set of airline's alliance partners constitutes its alliance portfolio. A central theme of these portfolios is the way in which partner selection improve performance. Is the alliance portfolio configuration based on either similar or different partners? We examine how the differences can arise from differences between the partners themselves, from resource complementarity, and from the partners structural positions in the network. The relations between these types of differences and whether they affect firm performance are studied. Codeshare alliances established between airline companies at a global level are analyzed to establish their effects on performance. In particular, the study comprises 135 alliance portfolios all of which from major airlines. The results suggest that structural homogeneity and complementarity improve performance and that alliance portfolio diversity favors network resource complementarity.

Alliance Portfolio Diversity and Innovation: The Interplay of Portfolio Coordination Capability and Proactive Partner Selection Capability

AbstractThis study seeks to explain how the innovation potential entailed in the structural characteristics of a diverse alliance portfolio can be leveraged by two different alliance management capabilities of a focal firm: portfolio coordination and proactive partner selection. An analysis of German biotechnology firms, based on database and survey data, indicates that each alliance management capability positively interacts with portfolio diversity to foster innovation. In addition, regarding their joint influence as capability bundle on the portfolio diversity–innovation link, portfolio coordination and proactive partner selection seem to substitute rather than complement each other. These results suggest that firms realize innovation benefits from a diverse set of external alliance partners only when they focus on and apply internal coordination or partner selection routines to manage these alliances, thus acting as either portfolio coordinators or portfolio configurators.

Different forms of household wealth are associated with opposing risks for HIV infection in East Africa

Abstract The relationship between material wealth and HIV infection in sub-Saharan Africa has been the subject of considerable debate in part because many studies show that wealth is positively associated with infection. Others have critiqued such results, suggesting that the widely used indicators of wealth underlying these results fail to capture the diversity of livelihood portfolios in East Africa. Using population representative data from 35,799 households in Kenya, Ethiopia, and Tanzania, we estimate household wealth along two different dimensions, associated respectively with success in wage economies and agricultural economies. Regression models for men and women show consistent and opposing associations between type of wealth and HIV infection. Controlling for age, education, and urban dwelling, increasing achievement along the wage economy dimension is positively (often significantly) associated with HIV infection. In contrast, increasing achievement along the agricultural economy dimension is often negatively associated with HIV infection, and is never associated with increased HIV risk. Interestingly, variables to assess risky sexual behaviors do not mediate the relationship between either type of wealth and HIV infection. Our results suggest that future studies on the relationship between HIV and wealth need to take into account the different dimensions of household wealth found in East African countries. Our results also generate new, important questions about why and how different forms of wealth drive HIV infection.

Who Takes on the Small Producers? The Role of Emergent Portfolio Dynamics

In this paper, I combine insights from economic and valuation-based theories to examine the factors of niche product representation and portfolio expansion. Building on the premise that different theories might have different explanatory potential on different levels of analysis, I outline expectations based on economies of scale, value homophily, and the lived experience of industry participants. I use the empirical case of beer wholesaling, a reactionary industry segment, in which firms were reacting to the changing conditions in beer production. The change entailed the emergence of a niche market segment, the increased market entry of small-scale producers. I conduct two analyses using a proprietary dataset. First, I analyze what accounts for a wholesaler’s decision to add any craft producers to its portfolio. Second, I answer what accounts for a portfolio with a wider variety of craft brands. I find that it is the firms with high sales values that have a higher likelihood of representing any craft labels; value homophily matters less. Moreover, there is a local logic to the composition of beer labels in a given portfolio, and this fit positively affects both craft representation and portfolio diversity. Finally, while ‘good renegade’ labels hinder access to portfolios of latecomer producers in most areas, they facilitate portfolio diversity in highly competitive environments. The discussion explores the generalizability of the good renegade concept and its connections to organizational inequality. This paper calls for extending current research frameworks in economic sociology that allow studying firm behavior using both economic and sociological lenses.

Partner Diversity and Firm Performance: A Study of Alliance Portfolios of Indian High-Tech Firms

In this study, we examine performance effects of partner diversity in exploratory and exploitative alliance portfolios (AP). We suggest that for exploratory AP the costs of partner diversity increa...

Casting a Wide Net for Innovation: Mediating Effect of R&amp;D Human and Social Capital to Unlock the Value from Alliance Portfolio Diversity

AbstractThis paper examines the performance effects associated with different alliance portfolio configurations in terms of geographical location and partner type. Based on these distinctions, the authors hypothesize that more diverse alliance portfolios enable firms to gain and exploit innovation opportunities. Additionally, the mediating effects of R&amp;D human and social capital on the R&amp;D alliance portfolio diversity–innovation performance relationship are explored. The authors reason that the absorptive capacity of R&amp;D intellectual capital determines a firm's potential gains from highly diverse alliance portfolios. From panel data of manufacturing firms in Spain for the period 2008–2013, the results confirm the inverted U‐shaped relationship between alliance portfolio diversity and firm innovation performance, implying that both insufficient and excessive alliance portfolio diversity may be detrimental to firm innovativeness. Additionally, R&amp;D human and social capital partially mediates the R&amp;D alliance diversity–innovation performance relationship, emphasizing the importance of internal capabilities to leverage the benefits of highly diverse alliance portfolios. These findings add a dynamic dimension to the conceptualization of alliance portfolios and how firms create value by balancing explorative and exploitative alliances.

Managing portfolio diversity within the mean variance theory

It is well documented that the classical mean variance theory (MVT) may yield portfolios (MVTP) that are highly concentrated and/or are outperformed by equal weight portfolios (EWP). In this work, it is proposed to expand the MVT minimizing objective function with an additional term that explicitly controls portfolio diversity (diversity booster DB). DB decreases with growing number of non-zero portfolio weights and has a minimum when all weights are equal. As a result, high values of DB yield EWP. For performance analysis, portfolio constructed with 12 major US equity ETFs is considered. Out-of-sample performance of maximum Sharpe portfolios is tested using statistics of bootstrapped Sharpe ratios for monthly rebalancing periods. It is found that for the 3-year calibrating window, the diversified MVT portfolio (DMVTP) outperformed both MVTP and EWP in 2012–2015. While the MVTP weights were highly concentrated and had sharp jumps between rebalancing periods, the DMVTP weights slowly changed with time.

Harvest portfolio diversification and emergent conservation challenges in an Alaskan recreational fishery

Diversification of harvest portfolios can benefit resource users by providing increased flexibility to respond to regulatory, economic, and environmental pressures. These adaptations, while important for maintaining harvesting opportunities, can lead to conservation challenges by shifting effort to other species or habitats. Using semi-structured interviews with charter fishing captains (N = 52) and logbook data, we examined shifts in the diversity of target species portfolios in a major recreational fishery in Alaska over three decades. To understand the role of regulation in affecting what species charter captains choose to target, we contrasted harvest portfolios in communities from two regions with differing histories of regulation. Portfolio structure was dynamic, with the majority of respondents reporting changes in the number of harvested species, relative preference for different species, or both since the 1990s. Diversification emerged primarily as a result of increased retention of historically less-preferred species, such as rockfishes, sablefish, and Pacific cod. Patterns of rockfish retention in charter logbook data mirrored patterns in targeting reported by respondents. Southeast Alaska captains largely attributed portfolio diversification and shifts in species preferences to greater restrictions on harvest of a primary target species (Pacific halibut), while Southcentral Alaska captains identified shifting customer interests and declines in some target species as driving changes. Our findings suggest that avoiding unintended conservation impacts of single-species regulations requires broader recognition of the multispecies nature of recreational fishing in management. Understanding fisher behaviors, values, and motivations is essential, so that managers may better anticipate the responses of fishers to new regulations.