Markets vs Management 661 Table 4. Comparison of results (percent of variance perform sensitivity analysis on the analytical accounted for) results by successively increasing the required Rumelt Current number of SBUs per corporation to be included Variable Schmalensee in the analysis. We went from a minimum of two SBUs per corporation to three, then four, Industry x Year n. a 2.3 etc. We were able to increase the SBu require- Market share n.a. ment through six. After a minimum of six SBUs 1.64 17.9 per corporation, our statistical power trailed off precipitously. However, the minimum of six 44.79 32.0 SBUS pe resulted 100.0 99.5 ber of SBUs per corporation of 7.82. Figure 1 presents the results of our diversification sensi- tivity analysis together with a power function terpolation Three possibilities immediately come to mind As can be seen from Figure l, there is a strong in order to explain the difference in the corporate relationship between the number of SBUs per parameter between the present research and the corporation and the percentage of SBu rOa results of both Rumelt (1991)and Schmalensee variance accounted for by the corporate effect. (1985 ) First, time must be a consideration. Per- What is particularly puzzling is our result which haps the world shaped up a bit differently in the suggests the corporate effect is inversely related late 1980s and early 1990s vs. the mid-1970s. to diversification is exactly the opposite of the Second, the difference in methods, although result obtained by Kessides(1987) minor, might have something to do with it. On the other hand, if we use a power function Finally, we must consider the differences in the to model the diversification sensitivity results and data bases. Recall that the Ftc data base con- then plot the average number of SBUs per corpor tained a much higher number of SBUs per corpor- ation in Rumelt's(1991)B' sample(the larger ation (Table 1). Thus, diversification of the cor- sample), we obtain a value for the corporate oration may have something to do with the effect of about 9 pe ercent(see the vertical axis differing result of Figure 1). Although we have not completely There is not much we can immediately do with converged with RumeIt's(1991) results of 1.64 respect to the first speculation-the world-has- percent, we have narrowed the gap from about changed hypothesis. And, the differences in 16 percent (2% vs. 18%)to about 7 percent methods, in our judgment, should not have made (2% vS 9%o). In the variance component analysis that much of a difference in outcomes (recall we used both an iterative and noniterative method But, we could investigate the third speculation- R2·0.849 diversification of corporation. Rumelt(1991), cit ing a working paper from Kessides(see the 3 16 citation on Kessides, 1987), reported that Schma lensee's data was reanalyzed in which all corpora tions which were active in fewer than three indus were excluded. The results produced a " statistically significant corporate effect(Rumelt, 1991: 170). The implication is, of course, the greater the diversification the greater the corporate a effect since Schmalensee (1985), who inclu the less diversified corporations, found no sig- nificant corporate effect The average number of lines of business per corporation for Rumelt's(1991) Sample B was Averag· Number of sBUs p· r Corporation 6.07. Our average number of lines of business Figure 1. Size of corporate effect vs degree of diver per corporation was 4.01. Thus, we began to sification