Why do Firms Diversify? The Italian Evidence

This paper investigates an old-fashioned topic in the Strategic Management: product diversification. In particular, the research question of the paper concerns whether opportunism or the search of financial synergies is at the core of product diversification decisions. Based on a unique panel of Italian firms for a long period of analysis, our results suggest the predominant role of the internal capital market arguments, especially relevant for the decision to diversify in unrelated segments and for unlisted firms. In a country as Italy, with many frictions in the capital market and a poor credit protection and governance, to have an internal capital market is supposed to be beneficial for firms.