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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…

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: 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: 29 August 2019

Pavlos Symeou and Hemant Merchant

Previous work in international business largely disregards the interplay between home-country conditions and firms’ geographical diversification – implying that…

Abstract

Purpose

Previous work in international business largely disregards the interplay between home-country conditions and firms’ geographical diversification – implying that, regardless of indigenous conditions, firms can modify their domestic performance (which the authors measure in terms of change in firms’ domestic productivity) merely by diversifying into international markets. The authors contest this view and argue that diversification does not substitute for home-country conditions. Rather, it moderates the baseline impact of home-country conditions on indigenous firms’ domestic performance. The purpose of this study is to describe these mechanisms and empirically examine their implications for indigenous firms’ performance.

Design/methodology/approach

The authors investigate the above model based on a 20-year longitudinal analysis of 600 observations involving telecommunication incumbents from 65 countries. They control for possible reverse causality between firms’ international diversification (and other firm-specific factors) and their domestic performance, and conduct several robustness checks.

Findings

The authors find – as hypothesized – that international diversification moderates the baseline performance impact of different home-country attributes in different ways. Such diversification does not have a uniform moderating effect on home-country attributes. In other words, the baseline effects of home-country conditions are altered as indigenous firms become more internationalized.

Originality/value

Theoretically, this work bridges the micro- and macro-level arguments that interweave strands from the competitive strategy and national competitive advantage literatures. By unpacking diversification’s role vis-à-vis the effect of upstream (home-country) conditions on firm performance, the authors attempt to shed light on the mechanisms that help (or hinder) indigenous firms’ performance. Empirically, this study helps to reconcile seemingly opposite views about whether and, if so, how much home-country conditions shape indigenous firms’ expansion after they have diversified internationally.

Details

Multinational Business Review, vol. 27 no. 4
Type: Research Article
ISSN: 1525-383X

Keywords

Article
Publication date: 1 September 1995

Piet M.A. Eichholtz, Martin Hoesli, Bryan D. MacGregor and Nanda Nanthakumaran

Analyses data from the USA and UK to determine whetherdiversification within a region by property type is better thandiversification between regions within a property…

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Abstract

Analyses data from the USA and UK to determine whether diversification within a region by property type is better than diversification between regions within a property type. Compares both strategies to full diversification by both property type and region. Calculates and compares property type and regional correlation matrices. Produces efficient frontiers and calculates principal components to determine if there are dominant property type or regional dimensions to real estate returns. Suggests that for the USA a purely retail portfolio diversified over all regions would have been almost as effective as a fully diversified portfolio. In the UK, there is less diversity across regions within retail property. Overall, there is no simple conclusion applicable to all regions and all property types in either country.

Details

Journal of Property Finance, vol. 6 no. 3
Type: Research Article
ISSN: 0958-868X

Keywords

Book part
Publication date: 6 September 2018

Chai-Aun Ooi, Chee Wooi Hooy and Ahmad Puad Mat Som

This study suggests two new diversification strategies, i.e., tourism-related and tourism-unrelated diversifications which are specifically applicable to the hotel firms…

Abstract

This study suggests two new diversification strategies, i.e., tourism-related and tourism-unrelated diversifications which are specifically applicable to the hotel firms. This study aims to investigate which diversification strategy has better benefits toward firm performance. This study includes a complete set of public listed firms of the hotel industry from four Asian countries, namely, Hong Kong, Singapore, China, and Malaysia, covering from years 2001 to 2012. Revealing the advantage and disadvantage of both diversification strategies, the empirical evidence regarding its influences on hotel firm performance are investigated in this study. This study finds a nonlinear relationship between degree of diversification and firm performance. Confronting with the volatile earnings when crises strike tourism sector, this study further shows how the crises affect the relationship between tourism-related/unrelated diversification strategy and hotel firm performance.

Details

Advances in Pacific Basin Business, Economics and Finance
Type: Book
ISBN: 978-1-78756-446-6

Keywords

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: 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…

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: 19 June 2017

Muhammad Hammad Masud, Faisal Anees and Haseeb Ahmed

The purpose of this research is to examine the effects of corporate diversification on earnings management.

1511

Abstract

Purpose

The purpose of this research is to examine the effects of corporate diversification on earnings management.

Design/methodology/approach

Based on listed firms regarding non-financial sector of Pakistan, the study runs mean comparison test along with panel least squares regression analysis.

Findings

The results of the study suggested that locally diversified firms and combination of industrial and geographical diversified firms mitigate earnings management. In support of the earnings equalizing hypothesis, managers of diversified firms have less need for accruals management because diversified firms had more free cash flows which naturally reduces earnings variability. This study also found that diversified firms had no informational asymmetry problems which reject the asymmetric information hypothesis. In addition, debt ratios are also associated with large organizations, but it shows that the more debt ratios are negatively associated with earnings management. Mean comparison test is also conducted, but the results are same as the regression results which does not confirm asymmetric information hypothesis.

Research limitations/implications

Different business segments are affected by the world financial crisis in 2008. Because of those financial shocks, the diversified firms are affected more. In future studies, results will become more favorable in context of diversified firms.

Practical/implications

The main function of earnings management is to make up the company for investors point of view to look healthier than it really is. But it may cause to disappointment for investors regarding loss of investment. It shows future projections of the company and has vital importance for investor’s perspective.

Social/implications

The misallocation of resources caused by earnings management refers to the value loss for society. Because the misallocation of funds will make that particular segment or division more vulnerable which ultimately make shareholders to go for entrenchment or liquidation. At the end, un-employment rises after entrenchment or liquidation and the society suffers.

Originality/value

This research makes an important contribution to the accounting and management literature by providing new and significantly different evidences on the relative roles of corporate diversification and earnings management.

Details

Journal of Indian Business Research, vol. 9 no. 2
Type: Research Article
ISSN: 1755-4195

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…

1298

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: 10 July 2009

Yahaya Makarfi Ibrahim, Aliyu Makarfi Ibrahim and Bala Kabir

Executives are often faced with the challenge of making sound decisions regarding the product and geographic markets into which the company should diversify. This…

988

Abstract

Purpose

Executives are often faced with the challenge of making sound decisions regarding the product and geographic markets into which the company should diversify. This situation is even more glaring with respect to construction companies, owing to the volatile nature of the construction market. The purpose of this paper is to present empirical results on the impact of geographic diversification on the performance and risk profiles of construction firms in the UK.

Design/methodology/approach

Published financial data of construction firms covering the period 1995‐2004 are employed in the paper. From this data, extent of geographic diversification, performance, and risk are computed. Firms are grouped based on the extent of diversification into undiversified, moderately diversified, and highly diversified. Performance of these groups is then compared using the t‐statistic based on return on equity (ROE), return on total asset (ROTA), return on capital employed (ROCE), and profit margin (PM).

Findings

The results show that firms that remain focused within the UK market outperform those that expand into international markets on PM only. There is no significant difference in performance based on ROE, ROTA, and ROCE. However, as expected, highly diversified firms are found to exhibit the best risk profile.

Originality/value

These results are invaluable to managers in strategic decision making. They also provide a first step to understanding the nature of the relationship between geographic spread and performance of UK construction firms.

Details

Journal of Engineering, Design and Technology, vol. 7 no. 2
Type: Research Article
ISSN: 1726-0531

Keywords

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