The Effects of Resource Investments and Diversification Strategy on Firm Value : Evidence from Small－ and Medium－sized Ventures in Korea

Many firms can create value by attaining a competitive advantage through resource－investments in innovation and marketing, and strategy such as diversification. Because firm size can influence resource allocation, risk taking, and firm strategies, it is necessary to investigate how, unlike large enterprises, small－ and medium－sized ventures create value. Depending prominently on the resource－advantage theory of competition, we developed an empirically testable model that could explain the effects of resource－investments and diversification strategy on firm value in the context of small－ and medium－ sized ventures in Korea. The model was tested with financial and accounting data of small－ and medium－ sized ventures listed in the Korea New Exchange. The results of a multiple regression analysis are mixed. On one hand, these ventures’ resource－investments such as innovation intensity reflected in R&D expense and marketing commitment reflected in advertising expenditure may positively influence firm value. On the other hand, the ventures’ diversification strategy has an insignificant impact on firm value. Finally, this manuscript concluded with a discussion of academic and managerial implications for small－ and medium－sized firms’ resource－investments in marketing, innovation, and diversification strategies for creating value.