Effect Of Geographic Diversification Research Articles

The Effect of Geographical Diversification Towards Property Investment Decisions in Indonesia

The Effect of Geographical Diversification Towards Property Investment Decisions in Indonesia

Effects of Geographic Diversification on Risk Pooling to Mitigate Drought‐Related Financial Losses for Water Utilities

AbstractAs the costs and regulatory barriers to new water supply development continue to rise, drought management strategies have begun to rely more heavily on temporary conservation measures. While these measures are effective, they often lead to intermittent and unpredictable reductions in revenues that are financially disruptive to water utilities, raising concerns over lower credit ratings and higher rates of borrowing for this capital intensive sector. Consequently, there is growing interest in financial risk management strategies that reduce utility vulnerabilities. This research explores the development of financial index insurance designed to compensate a utility for drought‐related losses. The focus is on analyzing candidate hydrologic indices that have the potential to be used by utilities across the US, increasing the potential for risk pooling, which would offer the possibility of both lower risk management costs and more widespread implementation. This work first analyzes drought‐related financial risks for 315 publicly operated water utilities across the country and examines the effectiveness of financial contracts based on several indices both in terms of their correlation with utility revenues and their spatial autocorrelation across locations. Hydrologic‐based index insurance contracts are then developed and tested over a 120 year period. Results indicate that risk pooling, even under conditions in which droughts are subject to some level of spatial autocorrelation, has the potential to significantly reduce the cost of managing financial risk.

A Study on the Effect of Geographic Diversification of Firms on Hedging Activity Using Derivatives

This paper examines the effect of fund manager replacement on investment performances of mutual funds. In managerial labor market of mutual fund industries with information asymmetry about the type and action of a fund manager, separating compensation may not be achievable due to imperfect evaluation of performances of fund managers. This paper extends contract theory to model the situations where a mutual fund offers pooling compensation contract to a fund manager based on his reputation. Under these environments, the fund manager has an economic incentive to acquire private benefit by manipulating performances and then to turn over to other mutual fund. Fund manager’s replacement is an aspect of adverse selection in the managerial labor market of fund industries. That is, a fund manager with low ability can select and manipulate unsuccessful investment portfolio generating loss to fund while he turns over to hide himself in the reputation under pooling contract mechanism. The empirical analysis of this paper provides the significant evidence that, differently from those of mutual funds of which managers stay in the same mutual funds, the fund performances drop after the fund managers turn over to other mutual funds. These empirical evidences support the theoretical prediction that the fund managers have incentive to manipulate short-term performances to maintain reputation for acquiring favorable compensation contracts.

A Perspective of Institutional Void on the effect of Geographical Diversification on CSR

Studying the relationship between global geographical diversification and firm performance in terms of corporate social responsibility, we posit that, because of the difference in institutional void, it makes a difference in this relationship whether an international firm is mainly diversified into developed countries (developed markets) or into emerging markets. Moreover, MNEs resource slacks may moderate the relationship differently. Testing empirically the effect of the diversification on two independent constructs, i.e., corporate social performance (CSP) and socially-irresponsible performance (CSiR), we obtain some interesting findings. (A) The diversification has a positive relationship with the CSP only in developed markets, and it has a negative relationship with CSP in emerging markets. (B) The diversification has a negative relationship with the CSiR only in developed markets, and it has no significant relationship in emerging markets. Finally, (C) MNEs slack resources moderate only the relationship between the diversification and CSP. Moreover, their moderating effects are all negative. However, MNEs slack resources do not moderate the relationship between the diversification and CSiR. We conclude with a discussion of the implications of the findings.

Geographic diversification, product diversification, and firm cash flow volatility: the moderating effect of firm dynamic capability

Literature is largely inconclusive on the effects of geographic diversification and production diversification on firm performance. This impedes the understanding of diversifications and hinders the decision-making process in global practice. Further, performance indicators in the literature are mainly constrained to the returns aspect of the firm. Risk side factors such as the volatility of cash flow are largely neglected. This paper explores the inconclusive pattern of diversifications from the perspectives proposed by resource-based theories and dynamic capability theories. It examines how firm capability dichotomizes the relationships between diversifications and firm cash flow volatility. Results confirm that capability the roles of both geographic and product diversifications. A high capability is a necessary condition by which diversification strategies by themselves, or their joint effort, can benefit the firm.

Effects of Diversification Strategies on US Restaurant Firms' Performance

Although diversification strategies in the US restaurant industry are actively implemented with strategic importance, research on the effects of diversification on firm value has been rare. This study investigates the individual effect of geographical diversification and brand diversification on firm value in the US restaurant industry context. Furthermore, to investigate the effects of diversification more comprehensively, this study examines whether or not brand diversification moderates the relationship between geographical diversification and the value of US restaurant firms. The study finds an insignificant effect of geographical diversification on firm performance, a negative effect of brand diversification on performance and a negative moderating effect of brand diversification on the geographical diversification–firm performance relationship.

Should banks be geographically diversified? Empirical evidence from cross-country diversification of European banks

Using a sample of European bank, this paper investigates the impact of banks' geographic diversification on their cost of equity capital. Examining the geographic diversification of European banks gives an insight on the value of cross-border banking. To measure diversification between major geographic areas in which the bank operates, the Herfindahl–Hirschman Index, based on revenues generated at home and abroad is constructed for each bank. To address the problem of endogeneity, system generalized method of moments estimator is used. The main finding of the analysis is that, other things equal, more geographic diversified banks have higher cost of equity capital than geographically focused ones. This result implies that the adverse market valuation effect of geographic diversification (increase in agency problem) dominates the positive ones (increase in efficiency and reduction in risk).

A Commentary on Risk Reduction by Geographic Diversification

The relationship between multinationality and value is still one of the most fundamental questions in IB research. Gande, Schenzler, and Senbet (2009) claim to have found empirical evidence for the incomplete capital markets theory (ICMT), which stipulates that investors value corporate multinationality due to its risk‐reducing effect. We show here that their findings do not support the hypothesis that investors value geographical diversification at the firm level because of its risk reducing effect. Further, a review of extant research shows that empirical results concerning the valuation impact of the risk‐reducing effect of geographical diversification at the firm level have to be regarded with caution due to conceptual and methodological inconsistencies. Consequently, this paper proposes several methodological refinements.

Risk Efficiency and Cost Effects of Geographic Diversification

This study uses survey data and deterministic simulation to analyze the effects of geographic diversification in central Illinois on the variance of farm rates of return, and on transportation, monitoring, and other operating costs. Results indicate that risk reduction from geographic dispersion in Illinois is relatively small, and is more than offset by increased operating costs. Rather, demand for land for expansion is the major motivation for observed levels of geographic dispersion of farm units.