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The Effect of Diversification on Firm Performance

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  • Mark Rogers

    (Harris Manchester College, The University of Oxford and Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

Abstract

This paper analyses the association between diversification and firm performance in a sample of up to 1449 large Australian firms (1994 to 1997). Firm performance is measured by profitability and, for quoted firms, market value. Results from the full sample show that more focused firms have higher profitability. This result controls for firm specific effects and other determinants of profitability. However, this association is not found in sub-sample regressions for listed firms. This is true both when either profitability or market value are used as a performance measure. The results may indicate that listed firms may be under closer scrutiny and competitive pressures that ensure, on average, that these firms are at their optimal degree of diversification.

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Bibliographic Info

Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2001n02.

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Length: 32 pages
Date of creation: May 2001
Date of revision:
Handle: RePEc:iae:iaewps:wp2001n02

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Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
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Web page: http://www.melbourneinstitute.com/
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  3. Hall, B.H., 1999. "Innovation and Market Value," Economics Papers 1999-w3, Economics Group, Nuffield College, University of Oxford.
  4. Lang, Larry H P & Stulz, Rene M, 1994. "Tobin's q, Corporate Diversification, and Firm Performance," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1248-80, December.
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  12. Michael Gort, 1962. "Diversification and Integration in American Industry," NBER Books, National Bureau of Economic Research, Inc, number gort62-1, June.
  13. Geroski, Paul A & Jacquemin, Alexis, 1988. "The Persistence of Profits: A European Comparison," Economic Journal, Royal Economic Society, vol. 98(391), pages 375-89, June.
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  16. Boozer, Michael A., 1997. "Econometric Analysis of Panel Data Badi H. Baltagi Wiley, 1995," Econometric Theory, Cambridge University Press, vol. 13(05), pages 747-754, October.
  17. McDonald, James Ted, 1999. "The Determinants of Firm Profitability in Australian Manufacturing," The Economic Record, The Economic Society of Australia, vol. 75(229), pages 115-26, June.
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Cited by:
  1. Christian Espinosa & Carlos Maquieira, 2010. "Diversificación y Desempeño en Sud América: Evidencia para Chile," Working Papers 10, Facultad de Economía y Empresa, Universidad Diego Portales.

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