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Diversification and risk-adjusted performance: A quantile regression approach

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  • Lee, Bong Soo
  • Li, Ming-Yuan Leon
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    Abstract

    The effect of diversification on firm performance has been debated. We reexamine the effect using a sample of 44,248 observations of non-financial US firms for the 1997–2009 period employing the quantile regression approach. Our empirical results show that the effect of diversification on firm performance is not homogeneous across various quantile levels: the diversification discount (premium) shows up in firms with high (low) RoE quantiles. Further, we find that diversification affects firm risk as well. Therefore, we consider a risk-adjusted performance measure and find that both diversification discount and premium disappear, which is consistent with the risk-return trade-off principle.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 36 (2012)
    Issue (Month): 7 ()
    Pages: 2157-2173

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    Handle: RePEc:eee:jbfina:v:36:y:2012:i:7:p:2157-2173

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Diversification; Risk-adjusted performance; Quantile regression;

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    Cited by:
    1. Baur, Dirk G., 2013. "The structure and degree of dependence: A quantile regression approach," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 786-798.
    2. Walid Mensi & Shawkat Hammoudeh & Juan Carlos Reboredo & Duc Khuong Nguyen, 2014. "Do global factors impact BRICS stock markets? A quantile regression approach," Working Papers 2014-159, Department of Research, Ipag Business School.

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