Arkadiy Sakhartov wins 2024 ISOI Best Paper Award

Gies Professor Arkadiy Sakhartov was named the recipient of the 2024 Illinois Strategic Organizations Initiative (ISOI) Best Paper Award for his article “Corporate Diversification and Risk: Portfolio Effects and Resource Redeployability” that was published in Strategy Science in 2022.  

“I'm very delighted to receive this award from the Illinois Strategic Organizations Initiative,” said Sakhartov, an associate professor of business administration. “This is a highly respected interdisciplinary research organization. It is a truly interdisciplinary organization by bringing us – people coming from different research areas – together and working on topics which span boundaries of multiple disciplines.”

The award is presented annually to a journal article or book published in the last five years that embodies and furthers the mission of ISOI. That mission is to conduct, sponsor, and promote world-class research and thought leadership in strategic organizations that will build upon the distinguished history and reputation of Gies College of Business in both organizational behavior and strategy. The scholars in ISOI aim to guide the research and practice of purposeful approaches to strategic management and organizations for the future.

“For me, this recognition is particularly appealing because I believe I am doing interdisciplinary research, which is difficult to fit into standard, narrowly defined boundaries,” Sakhartov said. “I do formal modeling based on dynamics of economics and mathematics of finance. This way of doing research is starting to be accepted in strategic management.”

Sakhartov’s award-winning paper examined and upended a standard truism of companies diversifying to minimize risk. For individual investors, there is an understanding that diversification can help alleviate investment risk over the long term. By holding a variety of securities in different areas and different companies, individual researchers can limit the impact that a downturn in one market would have on their overall investment portfolio.

By analogy, it was assumed that this would also be true for companies – diversifying over products or geographic regions would alleviate risk for the companies. In his 2022 paper, Sakhartov developed mathematical models to test out these theories, and he found these theories to be inaccurate. Diversifying companies did not guarantee a reduction in risk.  In fact, his results indicated that when companies employed economies of scope (the benefits from producing a greater variety of products), their risk actually increased over what would occur in an undiversified firm.

Sakhartov’s paper helps point the way to a new approach to evaluating risk. As he states in the paper, “The model in this study leads to the precise predictions for when corporate diversification reduces risk and when it, instead, increases risk. These more specific predictions lay the groundwork for new empirical tests, after decades of conflicting results in exploratory studies in corporate strategy and in international business.”

Sakhartov believes that the results of his modeling could have a strong impact in the field. “The finding I believe, is extremely important,” he said. “And it is very important because this is a misconception that corporate diversification – when firms diversify across different product markets or different geographic markets – reduces risk. It just persisted for decades.”