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Diversification, Performance, and the Corporate Life Cycle

Author

Listed:
  • Jonchi Shyu
  • Yen-Luan Chen

Abstract

This paper investigates the relation between the extent of diversification in firms and their performance at different life cycle stages. To illustrate the joint endogeneity of diversification and performance, we treat both the extent of diversification and firm performance as endogenous variables in a simultaneous equation system. Empirical results reveal that corporate diversification erodes firm value. Overall, firms in their growing stages experience a significant diversification discount; however, mature firms do not show such findings. Although unrelated diversification leads to trading at a discount in all growing and mature firms, conversely, related diversification exhibits an evident premium in mature firms.

Suggested Citation

  • Jonchi Shyu & Yen-Luan Chen, 2009. "Diversification, Performance, and the Corporate Life Cycle," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 45(6), pages 57-68, November.
  • Handle: RePEc:mes:emfitr:v:45:y:2009:i:6:p:57-68
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    Citations

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    Cited by:

    1. Narander Kumar Nigam & C. P. Gupta, 2023. "Negative Related Diversification, Positive Related Diversification and Firm’s Performance: Measurement and Application," Global Business Review, International Management Institute, vol. 24(1), pages 48-67, February.
    2. Wang, Shuxun & Wu, Kai & Lai, Seiwai, 2022. "Acquisition for innovations? M&A intensity and intra-firm innovation reallocations," Research in International Business and Finance, Elsevier, vol. 62(C).
    3. Sang-Lyul Ryu & Jayoun Won, 2022. "The Value Relevance of Operational Innovation: Insights from the Perspective of Firm Life Cycle," Sustainability, MDPI, vol. 14(4), pages 1-18, February.
    4. Narander Kumar Nigam & C. P. Gupta, 2021. "Correlation-based Diversification and Firm Performance: An Empirical Investigation of India," Global Business Review, International Management Institute, vol. 22(2), pages 442-458, April.
    5. Iqbal, Athar & Hameed, Irfan & Qadeer, Majid, 2012. "Impact of Diversification on Firms’ Performance," MPRA Paper 57240, University Library of Munich, Germany.

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