This study provides a behavioral account of opportunistic diversification. We argue that top executives’ social comparison with peer firms based on business segment performance can lead them to increase their investments in high-profitability new businesses (i.e., opportunistic diversification). Specifically, when the performance of a firm's main business relative to its peer firms’ high-profitability business segment falls short of their aspirations, the firm's top executives will engage in problemistic search and subsequently increase opportunistic diversification. This effect is stronger when the firm is similar to peer firms along key firm characteristics and when top executives of the firm are underpaid. Although opportunistic diversification helps improve a firm's short-term accounting performance, it may weaken its long-term performance. Using Chinese non-real-estate firms’ diversification investment in real estate as our empirical context, we find support for our arguments.
