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	Herfindahl Diversification Index	Tobin's Q Firm Value Analysis
Field	Strategic Management	Strategic Management
Family	Process / pipeline	Regression model
Year of origin	1979	1981
Originator	Alexis Jacquemin & Charles Berry; Krishna Palepu	Eric B. Lindenberg & Stephen A. Ross; Kee H. Chung & Stephen W. Pruitt
Type	Continuous index of corporate diversification with related/unrelated decomposition	Market-valuation ratio used as a firm performance and rent measure
Seminal source	Jacquemin, A. P., & Berry, C. H. (1979). Entropy measure of diversification and corporate growth. The Journal of Industrial Economics, 27(4), 359-369.	Lindenberg, E. B., & Ross, S. A. (1981). Tobin's q Ratio and Industrial Organization. Journal of Business, 54(1), 1-32.
Aliases	Entropy Measure of Diversification, Corporate Diversification Index, Jacquemin-Berry Entropy Index, Berry-Herfindahl Diversification Measure	Tobin's Q Ratio Analysis, Market-to-Replacement-Cost Analysis, Q-Ratio Firm Performance Measure, Approximate Tobin's Q
Related	3	3
Summary	The Herfindahl diversification index and its entropy cousin turn a firm's spread across businesses into a single continuous number, with the decisive advantage that the entropy form can be cleanly split into related and unrelated diversification. The Herfindahl-based measure is one minus the sum of squared segment revenue shares; the entropy measure, introduced for diversification by Jacquemin and Berry in 1979, is the share-weighted sum of the logged inverse shares. Jacquemin and Berry's key contribution was showing that total entropy decomposes additively into within-industry-group (related) and between-group (unrelated) components. Palepu's 1985 study applied this entropy decomposition to strategic management, finding that related diversification was associated with superior profit growth and giving the field an objective, replicable alternative to categorical schemes.	Tobin's q is the ratio of a firm's market value to the replacement cost of its assets, and it serves in strategy and industrial organization as a forward-looking measure of value creation and economic rent. A q above one means the market values the firm at more than it would cost to rebuild its assets, signaling that the firm earns rents -- from market power, brands, technology, or hard-to-replicate capabilities -- beyond the competitive return on capital. Lindenberg and Ross's 1981 study brought q into empirical industrial organization, developing an algorithm to estimate the replacement cost of assets and showing how q relates to monopoly power and barriers to entry. Because exact replacement costs are laborious, Chung and Pruitt's 1994 paper introduced a simple approximation built entirely from standard accounting and market data that tracks the exact measure closely, making q practical for large-sample research on firm performance.