Exploitative technological diversification, environmental contexts, and firm performance

Purpose: Although technological diversification is often understood as an explorative activity, the authors argue that it can also be explained as exploitation. The purpose of this paper is to examine how exploitative technological diversification (ETD) affects firm performance and what factors may moderate this relationship. Design/methodology/approach: The sample consists of 1,569 Chinese listed firms with 7,555 observations from 2003 to 2014. Patent data were collected from the State Intellectual Property Office, while financial information was collected from the China Stock Market and Accounting Research database. The system generalised method of moments model was used for testing the hypotheses. Findings: The empirical findings indicate that the relationship between ETD and firm performance is inversely U-shaped. Moreover, this relationship is negatively moderated by environmental munificence, which refers to the availability of resources in the environment where the firm operates, and positively moderated by environmental dynamism, which refers to the extent of volatility and unpredictable change in firms’ external environments. Originality/value: Overlooking ETD limits applications of diversification logic and the precision of their predictions. This paper tries to fill this gap by empirically testing the relationship between ETD and financial performance.