Absorptive capacity components: Performance effects in related and unrelated diversification

Abstract

We study how firms can benefit from external knowledge resources contingent on absorptive capacity. We separate the three components of absorptive capacity – acquiring, assimilating, and exploiting external knowledge – and posit that the benefits of a firm’s knowledge expansion through diversification into related and unrelated business domains differ by the firm’s relative emphasis on the three components. We test our predictions on a panel of 153 large US-traded ICT firms. Our analysis broadly supports our hypotheses, highlighting the unique contribution of individual absorptive capacity components to organizational learning through diversification strategy.