Abstract

Diversification is a relatively untapped topic among studies focusing on young, small firms. Nevertheless, a range of studies indicate that diversification has been a favored growth strategy among a small proportion of these firms. Diversifying young firms may be looking for synergies or the sharing of co-specialized innovative assets between different lines of business. They may also be forced to diversify by adverse circumstances in the market.

This paper focuses specifically on two major questions:

i. Which factors determine the timing of diversification for a start-up;

ii. How does diversification (and its timing) affect the probability of survival of young firms.

We use the Quadros de Pessoal (QP) micro-data, a longitudinal matched employer-employee data set built from mandatory information submitted annually by all Portuguese firms with at least one wage-earner to the Ministry of Labor and Social Security. We are interested in the moment of ‘first-time diversification’ i.e. the very first event of diversification by a start-up. We estimate hazard models of time to diversification and firm survival, comparing diversifiers and non-diversifiers. In both models, sets of control variables are used to account for firm-level and industry-level determinants of diversification and survival.

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