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1 – 10 of over 15000Varaporn Pangboonyanon and Kiattichai Kalasin
The purpose of this paper is to investigate how within-industry diversification affects the financial performance of small- and medium-sized enterprises (SMEs) in emerging markets…
Abstract
Purpose
The purpose of this paper is to investigate how within-industry diversification affects the financial performance of small- and medium-sized enterprises (SMEs) in emerging markets (EMs). The authors draw on both the resource-based view and the institutional perspective and argue that within-industry diversification can enhance the financial performance of SMEs in EMs. Due to institutional voids in emerging economies, SMEs can gain additional benefits from scope economies, as well as from market returns, by filling product market voids and gaps in business ecosystems, while also enjoying low input and labor costs that reduce the coordination costs of diversification. This, in turn, enhances benefits of within-industry diversification, thereby resulting in higher financial profitability.
Design/methodology/approach
This study employs panel data econometrics to estimate the model. The authors test hypotheses on 195 firms, originating from five countries in Southeast Asia, during the period of 2009–2014.
Findings
The empirical results support the arguments. Within-industry diversification has a positive impact on the performance of SMEs in EMs. These effects become weaker when the institutional contexts are more developed. Nevertheless, such effects become stronger when SMEs in EMs are more efficient.
Research limitations/implications
The relationship between within-industry diversification and performance is a positive linear pattern, which differs from the pattern in advanced economies. In addition to unrelated diversification, the related diversification is preferable for firms in EMs.
Practical implications
The paper provides implications for SMEs that aim to enhance their performance by engaging in single product lines and within-industry diversification.
Originality/value
This paper examines the different ways within-industry diversification can enhance SMEs performance in EM contexts.
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Jun Hao, Linxiao Liu and Zhaohui Xu
Audit firm diversification can take many forms. Strategic management theory suggests that if the diversification has a narrow focus, it can have a positive effect on performance…
Abstract
Purpose
Audit firm diversification can take many forms. Strategic management theory suggests that if the diversification has a narrow focus, it can have a positive effect on performance through knowledge spillover. However, if the diversification is too wide, the lack of economies of scope may cause an even negative impact on performance. The purpose of this paper is to examine the effect of an audit firm’s diversification strategy on audit quality.
Design/methodology/approach
Specifically, the authors test whether auditors can benefit from knowledge spillover in their area of specialization.
Findings
The authors find that the magnitude of discretionary accruals and the balance of below-the-line item are significant lower for clients from narrowly diversified area than those from a widely diversified area, suggesting a higher audit quality due to possible knowledge spillover. In addition, the authors find such benefits are more pronounced with clients with high earnings volatility.
Originality/value
This study extends the studies on auditor industry specialization by examining the effect of audit firms’ diversification on audit quality and assessing potential differences on audit quality between narrow and wide diversification.
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This paper aims to examine the consequences of banks asset, funding and income diversification on regional economic stability in the USA by using data on all 50 states and…
Abstract
Purpose
This paper aims to examine the consequences of banks asset, funding and income diversification on regional economic stability in the USA by using data on all 50 states and Washington, DC for 17 industries and their disaggregated constituent categories.
Design/methodology/approach
By using a panel dataset across industries and states in the USA, the author explains sector-specific state-level variation in average GDP growth during 2008-2009 using the average bank diversification during 2006-2007, as well as pre-crisis level growth rates in GDP, multifactor productivity in each industry and pre-crisis period state-specific key banking conditions.
Findings
The author finds banks’ pre-crisis level of diversification to have a positively significant impact on sector-specific state-level GDP growth during the Great Recession. The positive impact of banks diversification activities on industry-specific output growth across states is most pronounced for funding diversification.
Practical implications
The results indicate that bank diversification activities could be used as a measure to resuscitate an ailing economy and enhance the resilience of the real sector to financial sector distress. The same applies for banks capitalization and profitability.
Originality/value
Although a burgeoning body of literature has examined different aspects of banks income diversification, focusing mainly on its effects on risk and returns, the real sector implications of bank diversification activities have been rarely studied, especially in the US context.
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Karthik Dhandapani and Rajesh S. Upadhyayula
The purpose of this paper is to examine the impact of related diversification across service offerings and industry domains for professional service firms (PSFs) in emerging…
Abstract
Purpose
The purpose of this paper is to examine the impact of related diversification across service offerings and industry domains for professional service firms (PSFs) in emerging economies by integrating the reputational and economies of scope perspectives of diversification. The paper also provides insights into how related diversification impacts small and medium sized firms differently.
Design/methodology/approach
Using unique data from the Indian Information Technology industry, the authors examine the impact of related diversification along service offerings and industry domains on export performance of firms.
Findings
The results show that related diversification across specializations and industry domains impact performance differently across different firm sizes. While the authors find that related diversification across service offerings has an inverted U shape with performance for the medium sized firms, they do not impact performance for small sized firms. Performance of small firms has a U shaped relationship with relatedness in industry domains. The study shows that reputation transfer across industry domains play a significant role in the performance of small size firms whereas the ability to realize economies of scope by cross selling multiple services across clients do matter for performance of medium sized firms.
Practical implications
Managers of small PSFs need to expand along related industry domains whereas managers from medium sized firms can experiment across service offerings to exploit economies of scope.
Originality/value
The study contributes to hitherto unexamined research on related diversification in PSFs. The study is one of the few studies to examine relatedness along more than one dimension in an intra-industry context.
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The purpose of this paper is to examine how geographic diversification affects the performance of international new ventures.
Abstract
Purpose
The purpose of this paper is to examine how geographic diversification affects the performance of international new ventures.
Design/methodology/approach
This study develops hypotheses about the individual and joint effects of geographic diversification and industry life cycle on the performance of international new ventures. This paper also introduces industry technology characteristics as a contingent factor for the above relationships and tests the hypotheses on a large panel data set.
Findings
Based on the analyses of the strategies and performance of 699 listed Chinese international new ventures between 1991 and 2014, this study finds that the impact of geographic diversification on performance is contingent on the stage of the industry life cycle and that the moderating effect differs across high-technology and low-technology industries. The results suggest that it is fruitful for international new ventures in high-technology industries to undertake geographic diversification in earlier stages of the industry life cycle, but international new ventures in low-technology industries are better off undertaking geographic diversification during the later stages of the industry life cycle.
Originality/value
The study contributes to the literature on international entrepreneurship by identifying the industry life cycle conditions under which the learning advantages of international new ventures are effective and facilitate the achievement of better performance. This paper also shows that industry technology type matters for geographic diversification strategies of international new ventures.
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Varaporn Pangboonyanon and Kiattichai Kalasin
The purpose of this paper is to investigate how within-industry diversification affects the financial performance of small- and medium-sized enterprises (SMEs) in emerging markets…
Abstract
Purpose
The purpose of this paper is to investigate how within-industry diversification affects the financial performance of small- and medium-sized enterprises (SMEs) in emerging markets (EMs). The authors draw on both the resource-based view and the institutional perspective and argue that within-industry diversification can enhance the financial performance of SMEs in EMs. Due to institutional voids in emerging economies, SMEs can gain additional benefits from scope economies, as well as from market returns, by filling product market voids and gaps in business ecosystems, while also enjoying low input and labor costs that reduce the coordination costs of diversification. This, in turn, enhances benefits of within-industry diversification, thereby resulting in higher financial profitability.
Design/methodology/approach
This study employs panel data econometrics to estimate the model. The authors test hypotheses on 195 firms, originating from five countries in Southeast Asia, during the period of 2009–2014.
Findings
The empirical results support the arguments. Within-industry diversification has a positive impact on the performance of SMEs in EMs. These effects become weaker when the institutional contexts are more developed. Nevertheless, such effects become stronger when SMEs in EMs are more efficient.
Research limitations/implications
The relationship between within-industry diversification and performance is a positive linear pattern, which differs from the pattern in advanced economies. In addition to unrelated diversification, the related diversification is preferable for firms in EMs.
Practical implications
The paper provides implications for SMEs that aim to enhance their performance by engaging in single product lines and within-industry diversification.
Originality/value
This paper examines the different ways within-industry diversification can enhance SMEs performance in EM contexts.
Details
Keywords
Bertram Tan, Hae‐Ching Chang and Chen‐Kuo Lee
This paper aims to examine empirically the relationships among industry environment, diversification motivations and corporate performance for a sample of Taiwanese automobile…
Abstract
Purpose
This paper aims to examine empirically the relationships among industry environment, diversification motivations and corporate performance for a sample of Taiwanese automobile enterprises.
Design/methodology/approach
A 55‐item survey questionnaire was developed to obtain the responses from companies in the automobile industry in Taiwan. Independent sample t‐test and χ2 tests were employed to confirm the homogeneity between the respondents and non‐respondents by firm's characteristics, including by industry, number of employees, and capital.
Findings
The results suggest that industry environment has positive and significant impact on diversification motivations, and has positive but not significant impact on corporate performance. Diversification motivations has positive and significant impact on corporate performance. The results also indicate that firms of higher capital amounts have greater influence on diversification motivations and corporate performance, firms of publicly listed have greater influence on industry environment, diversification motivations and corporate performance and firms of higher degree of diversification have greater influence on diversification motivations only.
Research limitations/implications
Several limitations exist in this study. This study adopts the cross‐sectional research design and examines firms at one point time and because of the constraints of time and data availability, longitudinal research was not viable in this study. Also the amount of variation for some regression models is low.
Originality/value
The paper's results not only provide researchers with a theoretical basis for further research, but also provide top management teams with important data when engaging in diversification.
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The extensive research undertaken in studying the relationship between diversification and performance has been largely inconclusive. There have been a number of reasons for mixed…
Abstract
The extensive research undertaken in studying the relationship between diversification and performance has been largely inconclusive. There have been a number of reasons for mixed results including heterogeneity of samples, pooling of data, and cross‐sectional analyses. One possible way to address these problems is to make comparisons based on homogeneity of samples, or some other well‐defined structural variable, and to study firms longitudinally. More than just the statistical analysis, this paper identifies the key role of critical antecedent conditions that affect outcomes from diversification strategies. A sample of 59 firms from three distinctly different industries (food, electronics, and petroleum) are used in this empirical study. Results indicate that statistically significant differences exist when industry homogeneity is maintained and critical antecedent variables are isolated. More importantly, the role of initial conditions and historical performance levels have an important bearing on diversification efforts and subsequent performance.
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Rod B. McNaughton and Milford B. Green
To test the hypothesis of increased specialisation during the 1980s in the aggregate pattern of intercorporate ownership in the Canadian economy.
Abstract
Purpose
To test the hypothesis of increased specialisation during the 1980s in the aggregate pattern of intercorporate ownership in the Canadian economy.
Design/methodology/approach
The network of ownership between enterprises and subsidiaries is characterised for the period 1976‐1995 using data for the population of medium‐sized and large Canadian corporations collected by Statistics Canada.
Findings
Aggregate diversification declined slightly over the period in terms of the average number of industry groups in which enterprises have subsidiaries. However, there was an increased likelihood that subsidiaries were outside of the core industry group of the enterprise.
Research limitations/implications
The data provide insight into ownership changes across the economy and are not sensitive to changes in a few very large firms. However, a weakness of these data is that the ownership linkages are not weighted to reflect the economic importance of the enterprises involved. There is evidence that the pattern of inter‐corporate ownership is different between manufacturing and service sectors. Future research should treat these separately.
Practical implications
Increased specialisation to the core industry of an enterprise has implications for the management skills required to design and manage networks of independent firms (for example, through strategic alliances), the performance expectations and risks taken by shareholders, and the commercial and tax policies set by government. At an aggregate level, a reduction in diversification may change the industrial structure of the economy, with sectors less integrated through ownership relationships, and thus potentially more sensitive to patterns of market exchange.
Originality/value
Much of the literature on the effect of ownership restructuring on aggregate diversification is focused on the US economy, and there is little empirical evidence in the Canadian context. The data are unique, representing a population of medium‐sized and larger firms. To our knowledge there are no published analyses of the ownership structure represented in these data.
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Yi Yang, Tianxu Chen and Lei Zhang
From the attention-based view, the purpose of this paper is to examine how structural autonomy of a corporate venture capital (CVC) program influences its CVC managers’ investment…
Abstract
Purpose
From the attention-based view, the purpose of this paper is to examine how structural autonomy of a corporate venture capital (CVC) program influences its CVC managers’ investment decisions with regard to investment portfolio diversification.
Design/methodology/approach
This study collects data from VentureXpert, Compustat, and the US Patent Office. The final sample consists of 868 CVC portfolio-year observations from 1990 to 2004. Panel linear regressions and hierarchical linear regressions are used in the analysis.
Findings
The major finding of this study reveals that that structural autonomy of a CVC program is significantly related to its investment portfolio diversification. In addition to the direct effect, the authors also find that CVC structure autonomy moderates the relationship between corporate investor’s strategic attention and its CVC portfolio diversification. Specifically, when the autonomous level of a CVC program is high, the negative relationship between its parent’s relative growth potentials and CVC portfolio diversification will become positive, and the positive relationship between its parent’s business diversification and CVC portfolio diversification will become negative.
Originality/value
The CVC literature has suggested the impact of CVC portfolio diversification on value creation for corporate investors (e.g. Yang et al., 2014), however, few studies have investigated why some corporate investors diversify their portfolio of venture companies while others do not. To fill such a gap, this study identifies antecedents of CVC portfolio diversification such as CVC structural autonomy and corporate investor’s strategic attention as well as their interactive impacts. The finding also provides valuable managerial implications on CVC program designs.
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