Growth as a boundary condition: a threshold model of corporate diversification strategy

This study moves beyond the conventional linear assumption of the growth-diversification relationship, examining how revenue growth acts as a nonlinear driver of a firm’s choice between related and unrelated diversification. Using a panel dataset of 470 non-financial firms in Vietnam from 2013 to 2023, we employ a Panel Threshold Regression model to identify distinct strategic regimes. Our results reveal two critical growth thresholds that trigger strategic pivots. Related diversification, an exploitative strategy aligned with the Resource-Based View, is pursued only after firms surpass a high-growth threshold of 14.2%. Conversely, unrelated diversification, an exploratory strategy consistent with Portfolio and Agency Theories, characterizes firms in a low-growth regime below 7.6%. We also identify a ‘strategic transition zone’ for firms with growth between 7.6% and 14.2%. Within this corridor, firms adopt a distinct posture: they cease pursuing unrelated diversification as growth exceeds 7.6%, yet appear to lack the sufficient resources needed for related diversification, a strategy that becomes viable only above the 14.2% threshold. This period is a phase of active strategic recalibration, where firms re-evaluate market signals before committing to a definitive exploitation or exploration path. By providing this dynamic, threshold-based framework, our research offers a more realistic model of corporate strategy, demonstrating that a firm’s position on its growth journey, not merely growth itself, determines its diversification path.