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Article
Publication date: 25 October 2019

Shweta Sharma and Anand Anand

Geographic diversification results in the improvement of firm value through an increase in scale and scope of economies, gains in synergy, reduction in cost and improved corporate…

Abstract

Purpose

Geographic diversification results in the improvement of firm value through an increase in scale and scope of economies, gains in synergy, reduction in cost and improved corporate governance, however, the capabilities of financial institutions get heavily affected due to information asymmetries, varied macro and microeconomic factors across economies. In this context, the purpose of this paper is to empirically analyze the impact of geographical diversification on the performance of Indian Banks.

Design/methodology/approach

For an unbalanced panel data set of Indian Banks over the period 2001–2016, fixed effect model (FEM) with a distributed lag is used and tested for firm and time fixed effects. Further, the study also examines the role of bank size and ownership on the above association.

Findings

Findings of the study suggests that geographical diversification helps in increasing bank returns for the overall sample but does not have any significant impact on bank risk. For foreign and public banks, geographical diversification helps in increasing bank returns but does not have any significant impact on bank risk. This indicates toward the adverse selection, poor monitoring incentives in new markets and suggesting a lack of managerial skills.

Originality/value

The study indicates that while formulating the policies regarding branching and expansion these findings can serve as a guiding tool for managers and regulators. Findings have important implications for financial institution and policymakers in globalized financial markets.

Details

International Journal of Productivity and Performance Management, vol. 69 no. 3
Type: Research Article
ISSN: 1741-0401

Keywords

Article
Publication date: 22 March 2019

Hueiting Tsai, Shengce Ren and Andreas B. Eisingerich

The purpose of this paper is to theorize and empirically examine the effects of intra- and inter-regional geographic diversification on firm performance in China. Furthermore, it…

Abstract

Purpose

The purpose of this paper is to theorize and empirically examine the effects of intra- and inter-regional geographic diversification on firm performance in China. Furthermore, it investigates they key firm capabilities, which moderate the relationships between intra- and inter-regional geographic diversification and firm performance.

Design/methodology/approach

In this research, the authors studied 366 listed companies that invest in mainland China. The authors used the Taiwan Economy Journal database to construct a panel data set from 2005 to 2014 and employed panel regression estimations as part of the empirical analyses.

Findings

The authors find that the effect of regional diversification on firm performance is significantly influenced by the contexts of the expansion. More specifically, the results show that the effect of intra-regional geographic diversification on firm performance takes the form of a U-shape relationship. In contrast, the authors find that inter-regional geographic diversification has a negative effect on firm performance. Firm marketing, research and development (R&D) and managerial capabilities moderate these relationships.

Research limitations/implications

First, the companies studied in this research are mainly Taiwanese manufacturers with investments in mainland China. Second, the current model can be expanded by exploring additional process explanations and moderators in future research.

Practical implications

An important practical implication of this research is that when firms choose an intra-regional expansion strategy in China, they should adopt a moderate provincial diversification strategy in the invested region and reinforce its marketing capability to enhance firm performance. A careful consideration of a firm’s marketing, R&D and managerial capabilities is needed for successful regional diversification strategies in the China market.

Originality/value

The findings of this study contribute significantly to the existing literature on firms’ regional diversification. First, the authors explore and empirically test intra- and inter-regional geographic diversification strategies in China. The authors find that the effect of regional diversification on firm performance varies according to the contexts of the expansion (for instance, global, regional, in a single country). Second, this study furthers the research theme of intra- and inter-regional diversification by introducing and investigating previously unexplored firm capabilities as part of the framework.

Article
Publication date: 18 January 2019

Sujin Song, Sungbeen Park and Seoki Lee

This study aims to examine how geographic diversification affects firms’ risk by introducing the franchising strategy as a moderator.

Abstract

Purpose

This study aims to examine how geographic diversification affects firms’ risk by introducing the franchising strategy as a moderator.

Design/methodology/approach

The panel regression analysis was conducted with a sample of US restaurant firms. Specifically, a two-way random (or fixed) effects model clustered by firm was used to test hypotheses.

Findings

Findings show that geographic diversification does not significantly affect restaurant firms’ risk. However, franchising aggravates the negative effect of geographic diversification on restaurant firms’ risk, which contradicts the traditional theories of franchising.

Research limitations/implications

The results are expected to contribute to the diversification literature in the hospitality management by providing in-depth evidence for the effects of geographic diversification strategies on firms’ risk. Specifically, the study provides relevant theories for explaining the effect of geographic diversification in the restaurant context by examining franchising, a prominent strategy in the restaurant industry.

Practical implications

The results encourage restaurant firms to improve their managerial capability to react to changes in a geographically wider scope of markets and develop franchising contracts specifically to prevent misbehavior and moral hazard on the part of franchisees.

Originality/value

Considering the lack of research on the effect of geographic diversification on restaurant firms’ risk, this study examines not only the link between geographic diversification and firms’ risk but also a contingent factor, franchising.

Details

International Journal of Contemporary Hospitality Management, vol. 31 no. 1
Type: Research Article
ISSN: 0959-6119

Keywords

Article
Publication date: 19 February 2019

Hyoung Ju Song and Kyung Ho Kang

The purpose of this study is to investigate the moderating role of CEO duality on the geographic diversification–firm performance relationship in the US lodging industry.

Abstract

Purpose

The purpose of this study is to investigate the moderating role of CEO duality on the geographic diversification–firm performance relationship in the US lodging industry.

Design/methodology/approach

To examine the individual effect of geographic diversification and the moderating effect of CEO duality, this study adopts random effects regression. Additionally, to appropriately address the endogeneity issue, this study uses random effects regression with the instrumental variable method. The sample period spans 1990-2015 and 258 firm-year observations are included.

Findings

This study finds that geographic diversification has a positive and significant effect on firm performance. Also, the result shows a positive and significant moderating role of CEO duality, which implies that the magnitude of the impact of geographic diversification on firm performance is significantly greater when CEO duality exists.

Research limitations/implications

Although it has a limitation of applying the results of this study to privately held lodging firms in other countries, US public lodging firms are encouraged to consider a corporate governance structure incorporating CEO duality to maximize the effect of geographic diversification on firm performance.

Originality/value

This study contributes to the hospitality literature by providing a unique dimension that the influence of geographic diversification is contingent on the adoption of CEO duality. And, the results of this study provide practical guidelines for the lodging firms’ implementation of geographic diversification.

Details

International Journal of Contemporary Hospitality Management, vol. 31 no. 3
Type: Research Article
ISSN: 0959-6119

Keywords

Article
Publication date: 9 September 2014

Thomas Hutzschenreuter, Ingo Kleindienst, Florian Groene and Alain Verbeke

The purpose of this paper is to address how firms adapt their product and geographic diversification as a response to foreign rivals penetrating their domestic market by adopting…

1404

Abstract

Purpose

The purpose of this paper is to address how firms adapt their product and geographic diversification as a response to foreign rivals penetrating their domestic market by adopting a behavioral perspective to understand firm-level strategic responses to foreign entry.

Design/methodology/approach

The study proposes that strategic responses to foreign entry selected by domestic incumbents have both a framing component and a related, strategic choice component, with the latter including changes in product and geographic market diversification (though other more business strategy-related responses are also possible, e.g. in product pricing and marketing). This study tests a set of hypotheses building on panel data of large US firms.

Findings

The study finds, in accordance with our predictions, that domestic incumbents reduce their product and geographic diversification when facing an increase in import penetration. However, when increased market penetration by foreign firms takes the form of FDI rather than imports, the corporate response appears to be an increase in product and geographic diversification, again in line with our predictions.

Originality/value

The study develops a new conceptual framework that is grounded in prospect theory, but builds on recent insights from mainstream international strategic management studies (Bowen and Wiersema, 2005; Wiersema and Bowen, 2008).

Details

The Multinational Business Review, vol. 22 no. 3
Type: Research Article
ISSN: 1525-383X

Keywords

Article
Publication date: 31 January 2020

Shaista Wasiuzzaman

This paper aims to examine the effect of geographical diversification on corporate liquidity in Malaysian firms. Liquidity is represented by both cash and working capital.

Abstract

Purpose

This paper aims to examine the effect of geographical diversification on corporate liquidity in Malaysian firms. Liquidity is represented by both cash and working capital.

Design/methodology/approach

Data for this study is collected from a total of 735 firms over a period of five years, from 2010 to 2014, resulting in a total of 2,904 firm-year observations. The effect of geographical diversification on the cash and working capital of the firms is analyzed by using the ordinary least squares (OLS) with standard errors adjusted for firm level clustering and the quantile regression (QR) analyses. Control variables which represent the characteristics of the firms are also considered.

Findings

Analysis using the OLS regression technique indicates that geographical diversification has a highly significant positive influence on corporate cash holdings, while the influence of working capital is negative and its significance is only at the 10 per cent level. However, when QR is used to analyze the relationships, it is found that geographical diversification is only significant in positively influencing cash holdings for firms with low cash holdings, but the relationship is insignificant at high levels of cash holdings. Additionally, working capital is significantly influenced by geographical diversification at high levels of working capital but not at low levels.

Originality/value

To the author’s knowledge, this is the first study to analyze the influence of geographical diversification on liquidity by considering both cash and working capital. The effect of diversification on liquidity is mostly studied in developed countries, whereas this study is focused on a developing country. Additionally, this study uses QR to analyze relationships at different levels rather than at aggregate level as done in OLS regression analysis.

Details

Pacific Accounting Review, vol. 32 no. 2
Type: Research Article
ISSN: 0114-0582

Keywords

Article
Publication date: 20 February 2017

Pouya Seifzadeh

Drawing on the literature on corporate diversification, the purpose of this paper is to shed light onto the influence of geographic dispersion on the effectiveness of control…

1306

Abstract

Purpose

Drawing on the literature on corporate diversification, the purpose of this paper is to shed light onto the influence of geographic dispersion on the effectiveness of control mechanisms in related diversified corporations. This research contends that control mechanisms implemented by corporations and the extent of geographic diversification play a role in the synergies expected from related diversification being realized.

Design/methodology/approach

This study uses OLS regression to analyze data collected through surveys from managers of 193 Iranian corporations and their 2,704 subsidiaries to examine the relationship between relatedness, corporate performance, geographic dispersion, and emphasis of strategic controls.

Findings

The author finds that a triple interaction effect between corporate strategy (diversification approach), controls mechanisms, and the extent of geographic diversification influences the overall performance of corporations. Findings of this research suggest that the positive effects of strategic controls in related diversified corporations are most when there is less geographic dispersion and will attenuate as corporations become more geographically disperse.

Research limitations/implications

The findings of this research, have contributed to the extant literature in several ways. First, the findings further establish the superiority of related diversification to unrelated diversification in achieving economic performance in corporations. The findings reveal that, ceteris paribus, the more relatedness between activities of subsidiaries in corporations exists, higher performance can be expected at the corporate level. Second, the findings show once more that to achieve the higher performance that results from synergies in related diversified corporations, emphasis of strategic controls play a crucial and important role. Third, the author find that although the emphasis of strategic controls in essential to realizing the potentials in related diversified corporations, greater geographic dispersion attenuates the positive effects expected from stricter enforcement of strategic control mechanisms.

Practical implications

An important consequence of findings of this research is that managers should be more aware of the implications of selecting the geographic location of the subsidiaries that they either acquire or establish. While the literature focusing on corporate diversification has mainly focused on the differences between related and unrelated diversification, this paper brings a new factor into light. Therefore, the findings of this research provide the author with a better understanding of the factors that define success or failure in achieving financial objectives of corporations.

Originality/value

There has been very little done to investigate the factors that influence effectiveness of strategic controls in related diversified corporation. Much of this shortcoming has resulted due to difficulties in measurement of strategic controls their operationalization in empirical studies. This study has taken a step to that direction and therefore, provides a more coherent and clear picture of the factors that influence the overall performance in corporations.

Details

Journal of Strategy and Management, vol. 10 no. 1
Type: Research Article
ISSN: 1755-425X

Keywords

Article
Publication date: 27 December 2022

Di Fan and Chengyong Xiao

Uncertainties caused by political risks can drastically affect global supply chains. However, the supply chain management literature has thus far developed rather limited…

1016

Abstract

Purpose

Uncertainties caused by political risks can drastically affect global supply chains. However, the supply chain management literature has thus far developed rather limited knowledge on firms' perception of and reactions to increased political risks. This study has two main purposes: to explore the relationship between extant risk exposure and perceived firm-specific political risk and to understand the impact of firm-specific political risk on firms' vertical integration and diversification strategies.

Design/methodology/approach

The authors developed a unique dataset for testing our hypotheses. Specifically, the authors sampled manufacturers (SIC20-39) listed in the United States from 2002 to 2019. The authors collected financial and diversification data from Compustat, vertical integration data from the Frésard-Hoberg-Phillips Vertical Relatedness Data Library and political risk data from the Economic Policy Uncertainty database. This data collection process yielded 1,287 firms (8,329 observations) with available data for analysis.

Findings

A two-way fixed-effect regression analysis of panel data revealed that firms tend to be more sensitive to political risk when faced with income stream uncertainty or strategic risk. By contrast, exposure to stock returns uncertainty does not significantly influence firms' sensitivity toward political risk. Moreover, firm-specific political risk is positively associated with vertical integration and product diversification. However, firm-specific political risk does not result in higher levels of geographical diversification.

Originality/value

This study joins the literature that systematically explores the antecedents and implications of firm-specific political risk, thus broadening the scope of supply chain risk management.

Details

International Journal of Operations & Production Management, vol. 43 no. 6
Type: Research Article
ISSN: 0144-3577

Keywords

Article
Publication date: 2 August 2013

Luqman Oyekunle Oyewobi, Abimbola Olukemi Windapo and Keith S. Cattell

The purpose of this paper is to investigate and examine whether there is any significant relationship between the extent of business diversification and the performance of…

1438

Abstract

Purpose

The purpose of this paper is to investigate and examine whether there is any significant relationship between the extent of business diversification and the performance of construction firms in South Africa. The rationale for the examination stems from the view that the relationship between diversification and the performance of construction firms raises important issues in strategic management and cross‐border business. In contractors' growth however, there is a dearth of empirical research and theoretical arguments regarding the effects of business diversification on construction company performance in South Africa.

Design/methodology/approach

The study employed the use of a case study and archival approaches using semi‐structured interviews to elicit primary qualitative and quantitative data over a period of five years for large construction companies listed in Grade 7‐9 on the Construction Industry Development Board (cidb) contractor register. The scope of services and geographic diversification are computed from the sourced data. Dependent variables are the measure of performance using Return on Total Asset (ROTA), Return on Capital Employed (ROCE) and Profit Margin (PM); independent variables used are service/Product Diversification (PD) and Geographic Diversification (GD); while control variables used are size, age, technical capability and capital structure of the construction firms.

Findings

It emerged that established construction companies on the cidb contractor registers perform and diversify more in their service/product better than the newly upgraded contractors and this was evident in their performance with respect to profit margin. The results also indicated that there are no statistically significant differences in the performance of diversified and undiversified firms, although diversification was found to have a positive impact on the corporate performance of construction companies.

Originality/value

The outcomes of the research are useful to decision makers and managers of construction companies, as they will help in making viable corporate strategic diversification decisions. The study also engenders a better understanding of the effect of both product and geographic diversification on the performance of contractors.

Details

Journal of Financial Management of Property and Construction, vol. 18 no. 2
Type: Research Article
ISSN: 1366-4387

Keywords

Article
Publication date: 17 May 2011

Imen Khanchel El Mehdi and Souad Seboui

The purpose of this paper is to find out whether corporate diversification provides a favourable environment for earnings management (agency conflicts hypothesis) or whether it…

5140

Abstract

Purpose

The purpose of this paper is to find out whether corporate diversification provides a favourable environment for earnings management (agency conflicts hypothesis) or whether it mitigates this phenomenon (earnings volatility hypothesis).

Design/methodology/approach

Based on a sample of US firms and making an explicit distinction between industrial and geographic diversification, univariate and multivariate analyses are used to test whether firm diversification has an impact on earnings management.

Findings

Results show that the average diversified firm in the sample has somewhat more earnings management problems than a similarly constructed portfolio of stand‐alone firms chosen to approximate the segments of the conglomerate. Consistent with the agency conflicts hypothesis, the authors find that geographic diversification increases earnings management whereas industrial diversification decreases it, consistent with earnings volatility hypothesis. Moreover, industrial and geographic diversification combined reinforce this phenomenon. These findings are consistent with the view that the costs of geographic diversification outweigh the benefits.

Originality/value

The paper makes an important contribution to the accounting literature by providing new and significantly different evidence on the relative roles of corporate diversification in the earnings management. By linking two streams of research, earnings management and corporate diversification, one is taken into the unexplored area of the sources of the difference in earnings management between diversified and focussed firms. More specifically, this study provides evidence that earnings management is more intensively practiced in geographically diversified firms and even more so in firms that are both industrially and geographically diversified.

Details

Review of Accounting and Finance, vol. 10 no. 2
Type: Research Article
ISSN: 1475-7702

Keywords

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