Diversification by the largest US contractors

摘要

Market diversification may be a corporate strategy for risk management, for firm growth, or both. The purpose of diversification, either reduction of market risks or growth of revenues and profits, affects a contractor's selection of market sectors to enter. Diversification into different sectors affects the contractor's portfolio of business and its financial perform-ance. The current study performs an empirical analysis of contractors' diversification using US construction industry data published by Engineering News-Record (ENR). The study identifies (1) cross-correlations between market sectors; (2) the possible reasons for diversification by contractors; (3) diversification patterns by the contractors; and (4) differences in per-formance among the contractors classified by diversification strategy. These empirical findings may be of assistance to con-tractors in the development of their own diversification strategies.