Corporate International Diversification and Performance: An Economic Profit Viewpoint—Evidence from BRIC Companies

Abstract

In recent years, corporate international diversification has become a widely used growth strategy for companies from both developed and emerging markets. Nevertheless, academic papers provide contradictory results on whether the influence of international diversification on firm performance is positive or negative. This chapter presents the results of an empirical analysis of corporate international diversification—performance relationship on a sample of companies from BRIC countries, which expanded geographically in 2005–2015. We contribute to the existing literature by applying a new methodology to identify the performance effects of corporate international diversification based on an economic profit measure. The results indicate that there is a nonlinear relationship between the degree of international diversification and economic profit spread. Additionally, for BRIC companies, international diversification on average does not have a significant impact on expected long-term performance, measured by Tobin’s Q.