Antecedents of Within-industry Diversification: Evidence from the Korean Life Insurance Industry

We examine what makes firms diversify within an industry, considering several characteristics of corporate resources and the moderating influence of corporate governance. While most diversification studies have investigated how diversification influences firm performance without consideration of the industry to which the firm belongs, this study verifies what drives within-industry diversification with consideration of internal resources and corporate governance. Similarly, research in the fields of corporate finance and insurance has focused mostly on the impact of financial characteristics on firm performance; in this study, we examine many aspects of corporate internal resources that can be mobilized for the purpose of diversification, sales resources that are optimized to benefit the existing product category. To verify our results empirically, we investigate firms in the Korean life insurance industry where within-industry diversification is clearly evident. In this industry, firms intentionallyand institutionally pursue within-industry diversification similar to how they pursue product-level diversification; thus, within-industry diversification closely mirrors detailed strategic choices at the product level. We collected data from 25 insurers for the fiscal years ranging from 2007 to 2017 to form 264 panel data for analysis. The results of the empirical analysis suggest that firms with internal resources such as affiliate relationships for new product management show tendencies toward high within-industry diversification. However, firms with accumulated resources idealized for the existing product market exhibit less within-industry diversification. This study’s theoretical contribution is to provide a comprehensive perspective on within-industry diversification. This construct has not been explored, nor have its characteristics and determinants been clearly identified as compared to inter-industry diversification.