Skip to main content
SpringerLink
Log in

Firm Diversification and Financial Performance: Evidence from Manufacturing Firms Worldwide

  • Chapter
  • First Online:
Contemporary Issues in International Business

Part of the book series: The Academy of International Business ((AIB))

  • 1411 Accesses

Abstract

Product and international diversifications are both vital strategies for a firm. Our chapter aims to examine the joint effect of international and product diversification on firm performance, and to uncover what factors augment or weaken this joint effect on firm performance. Drawing on over 13,000 manufacturing firms in the period of 2004–2013, we found that the joint effect of international and product diversification on firm performance is negative. This negative effect tends to become stronger for firms in high-tech sectors, relative to firms in low-tech sectors. In addition, we found that this negative effect is weaker for developed country firms, compared to firms in emerging countries.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 99.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 129.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 179.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

References

  • Annavarjula, M., Beldona, S., & Sadrieh, F. (2006). Corporate performance implications of multinationality. Journal of Transnational Management, 10(4), 5–33.

    Article  Google Scholar 

  • Bebenroth, R., & Hemmert, M. (2015). Country-level antecedents of target firms’ post-acquisition business performance: A study of inbound Japanese and Korean M&As. Asian Business & Management, 14(4), 303–325.

    Article  Google Scholar 

  • Bell, J., McNaughton, R., & Young, S. (2001). ‘Born-again global’firms: An extension to the ‘born global’ phenomenon. Journal of International Management, 7(3), 173–189.

    Article  Google Scholar 

  • Bowen, H. P., Baker, H. K., & Powell, G. E. (2015). Globalization and diversification strategy: A managerial perspective. Scandinavian Journal of Management, 31(1), 25–39.

    Article  Google Scholar 

  • Bowen, H. P., & Sleuwaegen, L. (2017). Are international and product diversification substitutes or complements? Theoretical and empirical perspectives. Global Strategy Journal, 7(3), 241–256.

    Article  Google Scholar 

  • Buckley, P. J., & Strange, R. (2011). The governance of the multinational enterprise: Insights from internalization theory. Journal of Management Studies, 48(2), 460–470.

    Google Scholar 

  • Bureau of Economic Analysis, US Department of Commerce. (1999). Methodologies for direct U.S. investment abroad. International direct investment studies by the Bureau of Economic Analysis. Washington, DC: U.S. Government Printing Office.

    Google Scholar 

  • Cantwell, J., Dunning, J. H., & Lundan, S. M. (2010). An evolutionary approach to understanding international business activity: The co-evolution of MNEs and the institutional environment. Journal of International Business Studies, 41(4), 567–586.

    Article  Google Scholar 

  • Castellani, D., Montresor, S., Schubert, T., & Vezzani, A. (2017). Multinationality, R&D and productivity: Evidence from the top R&D investors worldwide. International Business Review, 26(3), 405–416.

    Article  Google Scholar 

  • Castellani, D., & Zanfei, A. (2006). Multinational firms, innovation and productivity. Cheltenham and Northampton, MA: Edward Elgar Publishing.

    Book  Google Scholar 

  • Castellani, D., & Zanfei, A. (2007). Internationalisation, innovation and productivity: How do firms differ in Italy? The World Economy, 30(1), 156–176.

    Article  Google Scholar 

  • Caves, R. E. (1996). Multinational enterprise and economic analysis. Cambridge: Cambridge University Press.

    Google Scholar 

  • Claessens, S., & Van Horen, N. (2012). Being a foreigner among domestic banks: Asset or liability? Journal of Banking & Finance, 36(5), 1276–1290.

    Article  Google Scholar 

  • Coad, A., & Rao, R. (2008). Innovation and firm growth in high-tech sectors: A quantile regression approach. Research Policy, 37(4), 633–648.

    Article  Google Scholar 

  • Contractor, F. J. (2007). Is international business good for companies? The evolutionary or multi-stage theory of internationalization vs. the transaction cost perspective. Management International Review, 47(3), 453–475.

    Article  Google Scholar 

  • Davies, S. W., Rondi, L., & Sembenelli, A. (2001). Are multinationality and diversification complementary or substitute strategies?: An empirical analysis on European leading firms. International Journal of Industrial Organization, 19(8), 1315–1346.

    Article  Google Scholar 

  • Denis, D. J., Denis, D. K., & Yost, K. (2002). Global diversification, industrial diversification, and firm value. The Journal of Finance, 57(5), 1951–1979.

    Article  Google Scholar 

  • Fombrun, C., & Shanley, M. (1990). What’s in a name? Reputation building and corporate strategy. Academy of Management Journal, 33(2), 233–258.

    Article  Google Scholar 

  • Geringer, M. J., Beamish, P. W., & DaCosta, R. C. (1989). Diversification strategy and internationalization: Implications for MNE performance. Strategic Management Journal, 10(2), 109–119.

    Article  Google Scholar 

  • Geringer, M. J., Tallman, S., & Olsen, D. M. (2000). Product and international diversification among Japanese multinational firms. Strategic Management Journal, 21(1), 51–80.

    Article  Google Scholar 

  • Hashai, N., & Delios, A. (2012). Balancing growth across geographic diversification and product diversification: A contingency approach. International Business Review, 21(6), 1052–1064.

    Article  Google Scholar 

  • Himmelberg, C. P., & Petersen, B. C. (1994). R&D and internal finance: A panel study of small firms in high-tech industries. The Review of Economics and Statistics, 76(1), 38–51.

    Article  Google Scholar 

  • Hitt, M. A., Dacin, M. T., Levitas, E., Arregle, J.-L., & Borza, A. (2000). Partner selection in emerging and developed market contexts: Resource-based and organizational learning perspectives. Academy of Management Journal, 43(3), 449–467.

    Article  Google Scholar 

  • Hitt, M. A., Hoskisson, R. E., & Kim, H. (1997). International diversification: Effects on innovation and firm performance in product-diversified firms. Academy of Management Journal, 40(4), 767–798.

    Article  Google Scholar 

  • Hoechle, D., Schmid, M., Walter, I., & Yermack, D. (2012). How much of the diversification discount can be explained by poor corporate governance? Journal of Financial Economics, 103(1), 41–60.

    Article  Google Scholar 

  • Jones, G. R., & Hill, C. W. (1988). Transaction cost analysis of strategy-structure choice. Strategic Management Journal, 9(2), 159–172.

    Article  Google Scholar 

  • Kistruck, G. M., Qureshi, I., & Beamish, P. W. (2013). Geographic and product diversification in charitable organizations. Journal of Management, 39(2), 496–530.

    Article  Google Scholar 

  • Kumar, M. (2009). The relationship between product and international diversification: The effects of short-run constraints and endogeneity. Strategic Management Journal, 30(1), 99–116.

    Article  Google Scholar 

  • Li, L., & Qian, G. (2005). Dimensions of international diversification: Their joint effects on firm performance. Journal of Global Marketing, 18(3–4), 7–35.

    Article  Google Scholar 

  • Love, J. H., & Ganotakis, P. (2013). Learning by exporting: Lessons from high-technology SMEs. International Business Review, 22(1), 1–17.

    Article  Google Scholar 

  • Majocchi, A., & Strange, R. (2012). International diversification: The impact of ownership structure, the market for corporate control and board independence. Management International Review, 52(6), 879–900.

    Article  Google Scholar 

  • Mathews, J. A. (2006). Dragon multinationals: New players in 21st century globalization. Asia Pacific Journal of Management, 23(1), 5–27.

    Article  Google Scholar 

  • Matraves, C., & Rodriguez, P. (2005). Profitability, diversification, and multinationality in leading German and UK firms. International Journal of Business and Economics, 4(2), 87–105.

    Google Scholar 

  • Mayer, M. C., Stadler, C., & Hautz, J. (2015). The relationship between product and international diversification: The role of experience. Strategic Management Journal, 36(10), 1458–1468.

    Article  Google Scholar 

  • Meyer, K. E. (2006). Globalfocusing: From domestic conglomerates to global specialists. Journal of Management Studies, 43(5), 1109–1144.

    Article  Google Scholar 

  • Palich, L. E., Cardinal, L. B., & Miller, C. C. (2000). Curvilinearity in the diversification-performance linkage: An examination of over three decades of research. Strategic Management Journal, 21(2), 155–174.

    Article  Google Scholar 

  • Rosen, S. (1990). Contracts and the market for executives: National Bureau of Economic Research (NBER Working Paper No. 3542).

    Google Scholar 

  • Ruigrok, W., Amann, W., & Wagner, H. (2007). The internationalization-performance relationship at Swiss firms: A test of the S-shape and extreme degrees of internationalization. Management International Review, 47(3), 349–368.

    Article  Google Scholar 

  • Sambharya, R. B. (1995). The combined effect of international diversification and product diversification strategies on the performance of US-based multinational corporations. Management International Review, 35(3), 197–218.

    Google Scholar 

  • Shama, A. (1993). Management under fire: The transformation of managers in the Soviet Union and Eastern Europe. Academy of Management Executive, 7(1), 22–35.

    Google Scholar 

  • Smith, P. J. (2002). Patent rights and trade: Analysis of biological products, medicinals and botanicals, and pharmaceuticals. American Journal of Agricultural Economics, 84(2), 495–512.

    Article  Google Scholar 

  • Svetličič, M., & Rojec, M. (1994). Foreign direct investment and the transformation of Central European economies. Management International Review, 34(4), 293–312.

    Google Scholar 

  • Tallman, S., & Li, J. (1996). Effects of international diversity and product diversity on the performance of multinational firms. Academy of Management Journal, 39(1), 179–196.

    Article  Google Scholar 

  • Teece, D. J. (1980). Economies of scope and the scope of the enterprise. Journal of Economic Behavior & Organization, 1(3), 223–247.

    Article  Google Scholar 

  • Tihanyi, L., Johnson, R. A., Hoskisson, R. E., & Hitt, M. A. (2003). Institutional ownership differences and international diversification: The effects of boards of directors and technological opportunity. Academy of Management Journal, 46(2), 195–211.

    Article  Google Scholar 

  • Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5(2), 171–180.

    Article  Google Scholar 

  • Wiersema, M. F., & Bowen, H. P. (2008). Corporate diversification: The impact of foreign competition, industry globalization, and product diversification. Strategic Management Journal, 29(2), 115–132.

    Article  Google Scholar 

  • Yang, Y., & Driffield, N. (2012). Multinationality-performance relationship. Management International Review, 52(1), 23–47.

    Article  Google Scholar 

  • Yang, Y., Martins, P. S., & Driffield, N. (2013). Multinational performance and the geography of FDI. Management International Review, 53(6), 763–794.

    Article  Google Scholar 

  • Zahra, S. A. (1996). Goverance, ownership, and corporate entrepreneurship: The moderating impact of industry technological opportunities. Academy of Management Journal, 39(6), 1713–1735.

    Article  Google Scholar 

Download references

Acknowledgements

We thank for the valuable comments from Davide Castellani and the participants at Academy of International Business (UK and Ireland Chapter) in Reading, 6–8 April 2017, UK. We are responsible for any error that might yet remain.

Author information

Authors and Affiliations

  1. Department of Business and Management, University of Sussex, Brighton, UK

    Jinlong Gu, Yong Yang & Roger Strange

Authors
  1. Jinlong Gu
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Yong Yang
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Roger Strange
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Jinlong Gu .

Editor information

Editors and Affiliations

  1. Henley Business School, University of Reading, Reading, United Kingdom

    Davide Castellani

  2. Henley Business School, University of Reading, Reading, United Kingdom

    Rajneesh Narula

  3. Henley Business School, University of Reading, Reading, United Kingdom

    Quyen T. K. Nguyen

  4. Henley Business School, University of Reading, Reading, United Kingdom

    Irina Surdu

  5. Henley Business School, University of Reading, Reading, United Kingdom

    James T. Walker

Rights and permissions

Reprints and permissions

Copyright information

© 2018 The Author(s)

About this chapter

Check for updates. Verify currency and authenticity via CrossMark

Cite this chapter

Gu, J., Yang, Y., Strange, R. (2018). Firm Diversification and Financial Performance: Evidence from Manufacturing Firms Worldwide. In: Castellani, D., Narula, R., Nguyen, Q., Surdu, I., Walker, J. (eds) Contemporary Issues in International Business. The Academy of International Business. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-70220-9_15

Download citation

Publish with us

Policies and ethics

Search

Navigation