Abstract
<p>This study investigates the relationships between financial hegemony groups, global diversification strategies and firm value of the Malaysia’s 30 largest companies listed in FTSE Bursa Malaysia Index Series during 2009 to 2012 period. We chose Malaysia as an ideal setting because the findings contribute to the phenomenon of the diversification–performance relationship in the Southeast Asian countries. We apply hegemony stability theory to explain the importance of financial hegemony groups in deciding international locations for operations. By using panel data analysis, we find that financial hegemony groups are significantly important in international location decisions. Results reveal that the stability of financial hegemony in BRICS and G7 groups enhances the financial value of the Malaysia’s 30 largest companies, whereas the stability of financial hegemony in ASEAN groups is able to enhance the non-financial value of the firms. Overall, this paper suggests that in order to diversify globally, it is necessarily for the manager in the guest country to evaluate and fully understand the host country’s geopolitical situation and its financial stability.</p>
Highlights
Geographic diversification in the context of maximizing firm value is widely discussed among academic researchers and business managers
ASEAN shows the lowest scores with 0.1713, 0.1609, and 0.1681, respectively. These results suggest that companies who diversified their segment in G7 enjoy the highest mean score of financial hegemony compared to companies who diversified their segment in the BRICS and ASEAN groups
With regard to multinational enterprises (MNEs) strategies to diversify globally, it is necessary for the manager of a guest country to evaluate and understand the geopolitical situation and financial stability of its host country in order to decide the suitable foreign location choice
Summary
Geographic diversification in the context of maximizing firm value is widely discussed among academic researchers and business managers. The ability to spread business risks and activities over a number of segments strongly suggests the value of market scope expansion across national boundaries; multinational enterprises (MNEs) are vital drivers of the global economic development (Deligonul, 2009; Qian, Li, Li, & Qian, 2008). Numerous studies examine the effects of the diversification–performance relationship, yet most of the literature focuses largely on the strategies and structures related to governance structure, diversification style, and organizational centralization as determinants to the value enhanced/destroyed. Literature related to global impact, such as geopolitical effects on the firm value of a globally diversified firm is relatively scarce and need further discussion. This paper aims to fill the lacuna in the literature by extending geopolitical concept to the analysis of financial hegemony as a key factor for monetary geopolitical changes and the value of the globally diversified firm
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