Corporate Diversification Strategy Research Articles

A study of the effect of corporate diversification strategy on technological innovation and strength in technology-oriented multinational corporations across countries

This study attempts to empirically explore the strategic impact of corporate diversification on technological innovation and strength measured by investments in research and development (R&D), and number of patents in high-tech industries across several industrialised countries. The major findings of this study demonstrate that corporate diversification strategies in markets and products are significantly related to various indices of technological innovations and economic performance in technology oriented multinational corporations across different countries and industry sectors. One of the significant findings of this study is that diversification strategies can influence a firm's technological capabilities by enhancing the intensity of R&D investments and increasing the number of patents. This study is intends to provide academicians as well as practitioners with more insightful explanation of strategic determinants of technological innovations and strengths in leading technology-oriented multinational corporations (TMCs).

A study of the effect of corporate diversification strategy on technological innovation and strength in technology-oriented multinational corporations across countries

A study of the effect of corporate diversification strategy on technological innovation and strength in technology-oriented multinational corporations across countries

Corporation Diversification and Firm Performance: Evidence from Vietnamese Listed Firms

We examine the effect of corporate diversification on the performance of firms listed on the Vietnamese stock exchanges, using 2744 firm year observations over the period from 2007 to 2012. We find that corporate diversification has a negative impact on firm performance. Our results are robust to various econometric estimation techniques including fixed effect, instrumental fixed effect, Heckman selection model and system generalised method of moments. In the Vietnamese context, the lack of an efficient corporate governance system may encourage firms to follow corporate diversification strategies, thus impairing their performance.

The Diversification Puzzle: The Role of Asymmetric Information and Insider Trading in Pakistan

While corporate diversification is a fundamental issue both in the management literature and in corporate policy, the question that remains is whether it destroys or enhances firm value. This empirical study of the corporate diversification–value relationship for Pakistani firms looks at the role of asymmetric information and insider trading over a 10-year sample period, 2005–14. Using the industrial entropy index and purchase ratio to capture corporate diversification and insider trading, respectively, the study provides empirical evidence that questions the agency theory-based explanation of the corporate diversification–value relationship. Our results show that, in cases of asymmetric information, insiders increase the purchase of their firms’ shares in the open market when diversification is high. This contradicts the corporate diversification–value destruction stance of agency theory as well as the idea that outside investors’ undervaluation occurs due to information asymmetries. These results have strategic implications for corporate diversification strategies and are relevant to firm managers, regulators and shareholders.

Ownership structure and corporate diversification decision: a study of Vietnamese listed firms

This research examines the impact of the ownership structure on corporate diversification decision of listed firms in Vietnam over the period of 2007 and 2012. The empirical results from logit model show that while state ownership has positive impact on corporate diversification decisions of the firms, foreign ownership has negative impact on corporate diversification decision of the firms. This implies that government ownership tends to encourage corporate diversification strategy, while foreign ownership may plays monitoring role and discourage corporate diversification strategy in emerging market context.

Puzzle of Corporate Diversification Efficiency in BRIC Countries

Researchers have long tried to define the impact of corporate diversification on firm value. Academic papers mainly concentrate on the effects of corporate diversification in mature markets while its consequences in emerging capital markets are less explored. This article presents the results of an empirical analysis of corporate diversification strategies of a sample of companies from BRIC countries that expanded via acquisitions during 2000-2013. We contribute to the existing literature by examining the effects of corporate diversification on firm value during the pre- and post-crisis periods. In line with other studies, we distinguish between related and unrelated diversification and in contrast to them we single out and separately analyze horizontal, conglomerate and vertical acquisitions. Based on a sample of 319 deals initiated by companies from BRIC countries, we found positive (3.32% and 9.01%) and statistically significant cumulative abnormal returns for conglomerate acquisitions during the pre- and post-crisis periods, correspondingly. We also found that the market reacts positively and statistically significant to the announcements of horizontal and vertical integration only during the pre-crisis period.

Government Officials' Political Incentives and Corporate Diversification in an Emerging Economy

While the importance of state in shaping organizations is well accepted, the mechanisms through which it affects firms have been narrowly defined. Drawing on the insights from political sociology, this paper proposes a new mechanism: the state shapes corporate strategy through its bureaucratic processes of achieving its formal agenda. The state designs long-term career path that structures government officials' political incentives and possesses bureaucratic capability to engage in institutionalized interaction with business actors through the predictable tenure system and political incorporation of business actors. I test this framework in the context of Chinese publicly listed firms' diversification from 2001 to 2009. Empirical findings support that due to state's concern for social stability, firms diversify into unrelated industries to absorb laid-off workers from bankrupted state-owned enterprises. Significant difference in corporate diversification can be explained by the career stage of provincial government officials, congress years (when promotion news is announced), sensitivity of the province to social stability (e.g., minority-dominated provinces), officials' tenure in current position and political incorporation of private business leaders. This study contributes to organization theory and strategy by delineating a new mechanism through which the state affects corporations. It opens the black box of the state by delving into the bureaucratic processes of the state and highlighting the role of agency. It also provides a political explanation for corporate diversification strategy in the context of an emerging economy.

Pengaruh Diversifikasi terhadap Kinerja Perusahaan

For many years, the benefit and cost of corporate diversification strategy have been debatable. This research provides empirical evidence on corporate diversification and its consequences toward firm value. Corporate diversification as part of internal market mechanism can have benefit and cost on performance of the firm. The writers estimated that diversification strategy would reduce firm value especially in situation like Indonesia with less developed financial market and many companies are still suffering from monetary crises in recent years. The writers found that companies with diversified business segment have negative excess value comparing with stand alone firms. In relation with firms characteristics, it shows that tobins q and asset size positively related with firm value. This result rejects internal capital market hypothesis.

Investments of oil majors in liquid biofuels: The role of diversification, integration and technological lock-ins

The increasing use of liquid biofuels has been justified by highly volatile and rising oil prices, geopolitical instability of countries that control most of proven oil reserves, growing demand for passenger transportation and environmental concerns, especially climate change. Investments in the sector are increasing steadily, with oil majors being responsible for rising investments into liquid biofuel joint ventures, research and development projects and logistics. This paper analyses the underlying motivations of these investments by evaluating corporate diversification and integration strategies. Findings indicate that vertical integration and diversification are an integral part of oil major's strategic behavior toward biofuels, although strategies differ substantially among companies. In the short term current major oil companies' investments in liquid biofuels are driven by the requirement to comply with binding mandates for biofuels, whereas in the long-term liquid biofuels, if produced on a significant scale, could be classified as non-conventional liquid hydrocarbon reserves for oil majors where access to other (non-)conventional resources is not secured. Finally, given existing technology lock-ins it seems unlikely whether different paths for producing liquid biofuels will be able to co-exist in the long term, or there will be only one dominant path possibly controlled by large oil companies.

Corporate Strategy, attention to subsidiaries, and the dilution of attention

I examine how corporate diversification strategies at the parent firm level influence the amount of attention directed towards international subsidiaries. Using a sample of over 11000 Japanese subsidiaries around the world I show that with higher levels of diversification, there is a decline in attention to subsidiaries. Additionally, I show how geographic distance and the extent of host-country presence moderate (dilute) this relationship. The results support some of the main arguments in the attention based view of the firm by showing how organizational and environmental factors shape the pattern of attention to subsidiaries. Implications for research and practice are discussed.

Factors that Influence Performance of the Industrial Diversification: An Empirical Study Based on Chinese Listed Companies

This paper presents an empirical study the factors that influence financial performance of enterprises’ industrial diversification. The method of empirical analysis is comparing the good performance diversified companies with the bad to test which factor affects the financial performance of industrial diversification significantly. Basing on the theoretical analysis, we selected variables that measure corporate governance, diversification strategy, and enterprise management. We ran logistic regression with the data from Chinese listed companies. The result shows that more meetings of the board of directors, less unrelated diversification degree, higher total assets turnover and stronger ability to obtain operating cash inflow will increase the financial performance of enterprises’ industrial diversification.

The effects of family dynamics on diversification strategy: Empirical evidence from French companies

The question of the influence of ownership structure on corporate diversification strategy incites debate. Past research has led to controversial results whether it is based on agency theory, strategic approach or stewardship theory. We propose new empirical evidence by applying this question to the context of family businesses in France. We find that family businesses are more diversified than non-family businesses, which contradicts past results of studies based on US samples. This finding underlines the importance of considering the diversity of international contexts. Our analysis also shows that there is a negative relationship between the presence of a shareholder block and the level of diversification only for non-family businesses. This result emphasizes the particularity of family businesses in terms of the links between governance structure and business strategy. Furthermore, our results reveal that there is no difference between family and non-family businesses in terms of the choice of diversification type (related or unrelated).

Ownership structure and corporate diversification strategies of Chinese business groups

PurposeDiversified business groups have become active players in Chinese economy in the recent years. While several studies have been conducted to examine the role of external factors such as market imperfection on firms' decisions to diversify, relatively few efforts have been made to investigate the impact of internal factors such as ownership structures on such decision. Building on agency theory, this paper attempts to examine the impacts of ownership type and ownership concentration on Chinese business groups' diversification strategies.Design/methodology/approachYear 2000 annual reports of publicly traded companies on Shenzhen Stock Exchange were used to identify business groups and collect data. Multiple regression analysis was used to conduct the data analysis.FindingsThe results indicate that compared to other ownership structures, government‐owned business groups tend to be more diversified, while ownership concentration seems to be related to lower levels of diversification. Industry membership also plays a significant role, but previous performance is not significantly related to diversification levels. Implications and future study directions are also discussed.Originality/valueThis study contributes to the understanding of the impact of ownership structure on companies' diversification strategies in a transitional economy such as China.

Ultimate Controllers and Corporate Diversification

This paper investigates the impact of ultimate controllers on corporate diversification strategy. Using a sample of Chinese listed firms from the period 2004 to 2008, the results show that the divergence between cash flow right and control right of the ultimate controller has significantly positive effects on corporate diversification. Further analysis shows that the effects of the divergence are stronger when the ultimate controller has a longer control chain.

Bank Loan Contracting and Corporate Diversification: Does Organizational Structure Matter to Lenders?

This paper investigates the effect of a firm's organizational structure on its debt financing activities. Using corporate diversification strategy as an identification tool for organizational structure, we find that diversified firms have significantly lower loan rates than comparable focused firms, and we find no evidence that diversified firms are subject to more restrictive non-price contract terms pertaining to maturity, collateral requirements, and covenant restrictions. We show that the effect of diversification on the cost of a bank loan is channeled primarily through coinsurance in investment opportunities and cash flows and that the effect is nonlinear: as the extent of corporate diversification grows, the cost-reduction benefit of diversification decreases. Our results indicate that the organizational structure of the firm can alleviate its external financing constraints and that it has an important bearing on the firm's financing capacity.

Ownership structure, corporate diversification and capital structure

PurposeThe purpose of this paper is to investigate whether, and to what extent, corporate diversification into related and unrelated businesses affects capital structure choices, and whether ownership structure is germane to the understanding of corporate diversification strategies and debt‐equity financing choices.Design/methodology/approachUnivariate approaches include the parametric two‐sample t‐test, non‐parametric Kolmogorov‐Smirnov test and Kruskal‐Wallis rank test, and cluster analysis. Multivariate approaches include panel data regressions to identify the sign and magnitude of the effect of diversification on capital structure, after controlling for a number of industry and firm characteristics as suggested in the literature.FindingsCorporate diversification into related or unrelated industries has opposite effects on capital structure, after controlling for ownership structure and corporate governance mechanisms. Consistent with the prediction of organizational economics, an increase in the degree of business relatedness is associated with a reduction in debt while an increase in business unrelatedness is associated with an increase in debt. In addition, there is strong evidence that government‐controlled firms use less debt financing and that government ownership weakens the positive relationship between unrelated diversification and leverage. The results are robust to different measures of capital structure.Originality/valueTraditional finance literature has not been able to provide conclusive evidence on what affects corporate capital structure decisions. This paper shows that a corporate strategy perspective, with its emphasis on a managerial decision‐making process, can provide a behavioral basis for understanding capital structure choices.

Do Monitoring and Alignment Mechanisms Influence Diversification Strategies ? The Case of French Companies

This article investigates the relationship between ownership structure and corporate diversification strategy. It focuses on the potential conflict of interest between shareholders and managers regarding diversification, and tests the resolution of such conflict by shareholder monitoring and then by the alignment of managers’ behaviour with that of shareholders. The study is original in that it is conducted on a population of large French companies, makes a clear distinction between insider and outsider ownership, and compares related diversification strategies to conglomerate strategies. The research shows that the effect of monitoring by outside blockholders is clear, leading to related diversification at the expense of unrelated diversification strategies. However, an increase in managerial ownership, far from leading to alignment, leads to managerial behaviour that goes against the interests of shareholders and more precisely to unrelated diversification strategies.

ANÁLISIS TEÓRICO DE LA RELACIÓN ENTRE DIVERSIFICACIÓN CORPORATIVA Y RESULTADOS EMPRESARIALES

En este trabajo se presenta una revisión teórica sobre la influencia que ejerce la estrategia de diversificación corporativa sobre los resultados empresariales. La revisión de la literatura efectuada nos permite proponer y justificar explicaciones para dos cuestiones clave que han suscitado el interés de los investigadores en este ámbito, sobre las cuáles no existe aún consenso en la literatura: si existen diferencias entre las rentabilidades de las empresas asociadas a las distintas estrategias de diversificación (distinto grado y/o tipo de diversificación) y si el entorno nacional es un factor condicionante de la rentabilidad de las empresas diversificadas. In this paper we present a theoretical review about the influence that exercises the corporate diversification strategy on performance. The review of the literature allows us to propose and justify explanations for two key questions that they have raised the interest of the researches in this topic, about the who consent in the literature does not still exist: if differences between the performance of the firms associated with exist the different strategies of diversification (different degree and/ or type of diversification) and if the national environment is a determining factor of the performance of the diversified firms.

CORPORATE DIVERSIFICATION AND TECHNOLOGICAL RESOURCES DYNAMICS IN AN ORGANIC GROWTH CONTEXT.

The article discusses corporate diversification strategies and its relationship with R&D intensity. Research is lacking for the connection between the two. The paper focuses on the dynamic relation...

Foreign-based competition and corporate diversification strategy

Foreign-based competition and corporate diversification strategy