Effects of the diversification strategies on the performance of the Brazilian industrial companies: a study about companies listed in the São Paulo stock exchange in the period 1997-2001

Several studies, in different countries, have been investigating the relationship between diversification of businesses and corporate performance. Basically, three models have been tested to describe that relationship: the linear model, the curvilinear model ('inverted U'), and the intermediate model. This paper focuses on theme, using the Brazilian industrial companies as the empirical evidence. The study scrutinizes the performance of enterprises that were listed in the São Paulo Stock Exchange in the period 1997-2001, via a panel analysis through the methods of Fixed Effects and Random Effects. The data didn't show enough adherence to accept that a positive relationship exists between diversification strategies and performance, neither lineally nor exponentially. The model that showed a better adjustment degree was the curvilinear model (through the quadratic and cubic functional forms) that can be interpreted as an evidence about the existence of points in which the marginal costs of diversification overcomes the marginal benefits and vice-versa. However, the relationship was shown indefinite; it was unable to conclude if the real shape is similar to an 'U' of an 'inverted U'. The main results obtained in the research support some empirical evidences found in other emerging countries.