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Abstract In the 1980s a number of large corporations restructured their diversified businesses through divestitures. It is hypothesized that restructuring activity focused on firms at intermediate levels of diversification (e.g., related‐linked) which have a mixture of related and unrelated business units. Results confirm this hypothesis which explains that such mixed corporate strategies create organizational and control inefficiencies in managing both related and unrelated types of business units. Restructured firms were also found to move towards two types of different internal capital markets (related and unrelated). Most restructuring firms moved toward lower levels of diversification (e.g., related‐constrained), although some moved toward higher levels of diversification (e.g., unrelated business). Also, this study finds restructuring firms that changed their corporate strategy by reducing diversified scope increased their R&D intensity. Firms that restructured and increased their diversified scope decreased R&D intensity. This result suggested a partial substitution between diversification and R&D activity.
Hoskisson et al. (Sun,) studied this question.