Abstract
The objective of this research is to establish whether a relationship between firm motives for diversification and macroeconomic conditions exists. To measure the influence of the eco nomic factors on the firm diversification decision, if any, several multi-factor models are employed. As a measurement of diversification level, the change in the number of segments per firm by year (SegGrowth) is estimated on some economic indexes. The study period is divided on sub-periods based on the bull and bear markets as defined by Dow Theory and the Standard & Poor’s Equity Research. Results from the regression models suggest that the firm diversification decision is influenced by poor macroeconomic conditions. The average number of segments per year during bear market periods is significantly greater than that for the bull market periods. These results indicate that firms have a propensity to diversify dur ing poor economic conditions. One possible explanation is that when the firm faces eco nomic and financial risks, the diversification could be a solution to lower the risk or to exploit new productive opportunities.
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