The impact of international diversification on credit scores: Evidence from the UK

Despite the great deal of previous research into international diversification, we know little about the impact of international diversification on firms’ credit scores. Drawing upon the resource-based view and transaction cost economics, we examine the relationship between international diversification and credit scores by using a large sample of 6,557 UK firms between 2016 and 2017. We find an inverted U-shaped relationship between international diversification and firms’ credit scores, indicating that the effect of international diversification on credit scores is initially positive but becomes negative with over-diversification. In addition, we find that R&D intensity positively moderates the relationship between international diversification and credit score, implying that the credit scores of highly diversified firms improve as they increase their investment in R&D. Further analysis suggests that a firm’s credit score becomes less dependent on international diversification for large firms, firms in concentrated industries, firms in the manufacturing sector, and firms distant from key metropolitan areas, such as London.     

企业国际多元化：一个文献综述

从资源配置的角度看,企业战略包括两个基本方面：行业多元化和国际多元化。与行业多元化相比,对国际多元化的关注较少。理论分析表明,国际多元化既有成本,也有收益。通过总结国外关于国际多元化的最新研究发现,目前关于国际多元化与企业绩效关系的实证研究结论并不一致,这些经验研究主要是基于发达国家企业的样本,并且这些研究本身也存在许多问题。利用新兴市场经济国家的样本可能会得出不同的结论。     

The effect of product diversification strategies on the relationship between international diversification and firm performance

Previous studies have provided mixed evidence on the interaction effect of product and international diversification on firm performance. This study extends this stream of research by investigating the differential impacts of product diversification strategies on the relationship between international diversification and firm performance. We find that while related product diversification positively influences the performance of multinational firms, unrelated product diversification negatively moderates the international diversification–performance relationship. The evidence is robust for different models of international diversification and firm performance, and holds for firms in both the service and manufacturing industries. Our findings highlight the importance of distinguishing different product diversification strategies, and provide a potential explanation for prior mixed evidence.     

Corporate advantage in customer-centric diversification

Our theory explains how multi-product corporations that engage in customer-centric diversification can create and sustain corporate advantage. First, we invoke the concept of customer-centric assets to explain their role as the cornerstone of corporate advantage in customer-centric diversification. Second, our explanation of the corporate advantage in customer-centric diversification goes beyond the hypothetical ‘consumer synergies’ argument to also include the ‘market-power advantage’ argument. We explain the mechanisms employed by multi-product firms to share and/or leverage their customer-centric assets to create corporate advantage. Third, we explain how sustaining the corporate advantage so achieved requires the organizational-renewal activities to go beyond simply addressing the changing nature of the firm’s demand-side resource (i.e. customer-base) to manage revenue and/or profits.     

International diversification of the emerging-market enterprises: A multi-level examination

This study develops a cross-level research model based on insights from the capabilities view and institutional theory. We examine the drivers of international diversification for firms from emerging economies, specifically how top managers’ prior experiences and a favorable institutional environment for human capital affects the international diversification of emerging-market enterprises (EMEs). This research demonstrates that firm- and country-level factors collectively influence the international diversification of EMEs. We find that an EME whose top managers have global managerial and technological experiences is more likely to venture into international markets when a favorable institutional environment provides globally competitive, highly skilled human capital. This study demonstrates that for a multidimensional phenomenon such as EMEs’ international diversification, a more complete picture emerges given a theoretical framework that builds on diverse perspectives which are empirically tested across levels.     

Measuring the diversification benefits of investing in highly internationalised firms

A vast literature exists investigating if Multinational Companies (MNCs) provide indirect international exposure to investors. These studies produce mixed results. Unlike previous studies, we distinguish between various types of MNCs, in particular firms that are consistently international versus firms that are in the process of internationalising. We provide a unique longitudinal dataset of firm-level multinationality of 396 Russell 1000 firms between 1996 and 2010, and estimate the diversification benefits of investing in these firms using mean variance spanning and Sharpe ratio tests. We find that the most consistently international firms provide the greatest diversification benefits. Rapidly internationalising firms provide little benefit, suggesting that the costs of rapid firm-level internationalisation are substantial. This distinction between firms at differing stages of internationalisation adds to the debate on the benefits of investing in MNCs and provides a possible explanation to the conflicting findings in the literature.     

How may the nature of family firms explain the decisions concerning international diversification?

This study explores how the ownership structure of family firms gives these organizations a distinctive nature in terms of international diversification. We argue that the heterogeneity of family firms may cause variations in the degree of international diversification among these types of businesses. We have studied three factors related to ownership structure: the degree of family ownership and the type and degree of ownership of the second largest shareholder (another family or a financial company). The empirical evidence is provided by a sample of European and Asian family firms (2004–2008). Our results show that the degree of family ownership has a negative impact on the degree of international diversification. However, the presence and ownership share of a financial company as the second largest shareholder in a family firm favor this diversification. This study also reveals the importance of the financial company as a second owner in the preference family firms show for growth in international markets.     

Revisiting the relationship between product and international diversification in new ventures: The moderating effect of effectuation processes

This study examines the relationship between product and international diversification in new ventures, suggesting effectuation processes to be key moderators of this relationship. Effectuation processes allow young firms to attenuate constraints imposed by the liabilities of newness, the uncertainty and the lack of prior diversification experience these firms face and which may significantly restrict the number of growth opportunities they can jointly exploit in the short run. Specifically, the findings indicate that reliance on experimentation, maintenance of flexibility and securement of pre-commitments positively moderate the relationship between product and international diversification in new ventures. From all effectuation processes, only the adoption of the affordable loss principle lacks a significant effect on the link between the two growth strategies. Theoretical and empirical implications are further discussed.     

Does corporate diversification create value in emerging markets? New evidence from Chile

Using a sample of 85 Chilean firms listed in the Santiago Stock Exchange from 2005 to 2013, we analyze the impact of corporate diversification on firm value. We consider voting rights of the main shareholder and institutional investors’ influence on firm value. We report firm‐value destruction for diversified firms. Regarding ownership concentration, we report a negative relation between the largest shareholder ownership and firm value. Separation between voting rights and cash flows rights of this shareholder is negatively related to firm value. While Pension Fund Administrators (AFP) mitigate firm value destruction in diversified firms, other institutional investors do not play an active role in controlling value destruction. Finally, if the largest owner is a family, we report firm‐value creation in diversified firms. Copyright © 2016 ASAC. Published by John Wiley & Sons, Ltd.     

Relationship between portfolio diversification and value at risk: Empirical evidence

This research explores the risk associated with the stocks prices in the seventeen selected companies that are listed in Indian BSE (100) National as well as portfolios of investment that are constructed from these seventeen companies employed. Additionally, for considering the possibility of international diversification, construction of portfolios of investment form stock price indexes in various emerging markets and developed countries of the world is considered. Correlations for domestically as well as internationally diversified portfolios are computed to unveil the relationship between stock prices of various firms as well as domestic and internationally diversified portfolios of investments. Further, to understand the effect of diversification on the risk associated with each of the portfolios of investments employed, value at risk analysis (VaR) is undertaken for studying the benefits associated with domestic as well as international diversification (if any).The study results show that domestic diversification lowers the expected losses associated with each of the domestic portfolios of investment employed where the international diversification substantially mitigates the portfolio risks. Results from VaR analysis reveal that diversification lowers the portfolio risks and additional reduction in portfolio risks is realized by international diversification.     

International diversification of family-dominant firms: Integrating socioemotional wealth and behavioral theory of the firm

Drawing on the behavioral theory of the firm, we shed light on an extant debate about whether family firms are more or less likely to diversify internationally. In an analysis of firm-level data from 93 countries over 2011–2018, we find that family-dominant firms—with their established preference for low breadth-high depth international diversification—will seek to increase their breadth when performance falls below aspiration level, but that doing so can hurt their performance stability. Our study advances the literature by identifying important boundary conditions to their prioritization of socioemotional wealth and micro-foundational mechanisms that underlie strategic change in family-dominant firms.     

Disentangling the effects of domestic corporate political activity and political connections on firms’ internationalisation: Evidence from US retail MNEs

Scholars are increasingly investigating the implications of firms’ domestic corporate political activity (CPA) and political connections on their internationalisation prospects. In this paper, using insights from the resource dependence theory, we argue that domestic CPA and political connections developed within the home country have contrasting effects on firms’ international expansion, such that, while domestic CPAs (mainly, lobbying and campaign contributions) facilitate internationalisation, political connections deter internationalisation. We also argue that this relationship is moderated by firms’ international experience and product diversification. We test our hypotheses using a panel dataset comprising 38 retail Multinational Enterprises (MNEs) originating in the United States (US) whose activities we traced over the 16-year period 2003?2018. Our findings support our hypotheses.     

Investor base and corporate borrowing: Evidence from international bonds

We examine international bond issues by US firms to study the benefits of investor taste for cross-border security issuances. We proxy for firms' international investor taste with the fraction of prior international bond holding in firms' domestic and international bonds and find that international investor demand increases with such taste. Moreover, the offering yield spreads on international bonds are lower than domestic offering yield spreads for these internationally recognized firms and they have higher probability of issuing internationally. Such international recognition may occur, for instance, if the diversification benefits of adding the security to investor's portfolio outweigh the negative effects of higher renegotiation costs for international compared to domestic investors.     

A systematic review of the relationship between international diversification and innovation: A firm-level perspective

We conduct a systematic review of the relationship between international diversification (ID) and firm-level innovation (I), considering articles published between 1989 and 2020. The relationship between international diversification and innovation strategies is dynamic and complex, and recent evidence challenges the traditional notion that upgrading firm-specific advantages through technological innovation can be sufficient to guarantee international firm growth and performance. We develop a unified framework that integrates findings from extant ID-I research while also proposing new avenues for further research on topics such as: how firms deal with potentially conflicting ID-I goals, how underlying firm motives shape the interactions between these goals, and how new technologies and institutional dynamism increasingly influence the ID-I relationship. We also discuss how and why the new contexts in which decisions are made, together with the prevalence of relatively newer types of firms (e.g., those associated with global value chains, latest wave of emerging market multinationals, digitalized service MNEs), require a more modern conceptualization of the ID-I relationship.     

Efficiency of multinational banks: Impacts of geographic and product loci

This paper explores geographic diversification strategies’ impact on multinational banks’ operational performance within the context of research on globalization and regionalization. We employ a sample of the 49 largest banks from 16 European countries from 2011 to 2018 and proxy operational performance by technical efficiency. We find the impact of geographic diversification on operational performance depends on the locus of geographic diversification—home-regional vs. inter-regional—and the interplay between geographic diversification and banks’ functional focus. More specifically, home-regional diversification together with a concentration on non-interest income-generating activities, including fee and commission and trading income, worsens performance, and diversification across regions alongside a focus on non-interest income-generating activities improves performance. Distinct product characteristics’ ability to facilitate different regional dispersions has important managerial implications for enhancing the success of geographic diversification strategies, a central but unresolved issue in global banking.     

Do family ties shape the performance consequences of diversification? Evidence from the European Union

This paper examines the moderating effect of family involvement in ownership and control on the relationship between diversification strategies – both product and international diversification – and corporate performance. We argue that this moderating effect is related to the distinctive characteristics of family firms compared to non-family firms. The empirical evidence is provided by a sample of firms from the European Union during the 2005–2009 time period. Our results found that family firms are more profitable than non-family firms when they engage in joint product and international diversification.     

Impact of industry sector on corporate diversification and firm performance: Evidence from Indian business groups

Prior business group (BG) studies implicitly assume that corporate diversification‐firm performance relationships are uniform across industry sectors. This generalization may lead to research implications that are not equally true for BG‐affiliated manufacturing and service firms. Drawing on strategy and marketing literature, this research addresses this scholarly gap. Our empirical analysis of a large sample of BG‐affiliated Indian firms over a five‐year period (2004‐2008) indicates that the influence of corporate diversification on firm performance is greater for affiliated service firms than affiliated manufacturing firms. Results also indicate that the influence of BG size and diversity on diversification‐firm performance relationship varies significantly depending on whether the focal firm belongs to the manufacturing or service sector. Firm's share ownership does not generate similar influence. Copyright © 2015 ASAC. Published by John Wiley & Sons, Ltd.     

Coping with the crisis and export diversification

Using a highly disaggregated firm–product–destination level data from Denmark, we analyse how Danish exporters responded to the global recession in 2008–09 and the recovery that followed. We show that firms reacted mainly by adjusting their scale of export shipments and by extending their export portfolio outside of their core products and markets. More importantly, we also find that export diversification into fast-growing economies like China was associated with better export growth performance. Hence, trade reorientation beyond traditional market destinations accelerated export growth and as such constitutes an important mechanism for understanding the various determinants of firm heterogeneity.     

我国上市公司多元化经营的决定因素研究

This paper empirically studies the determinants of diversification of Chinese listed companies from the perspectives of motivation and conditions. Results show that the traditionally believed motivations of economic rationality, organizational rationality and individual rationality have all exerted influences upon the choice of diversification models. By comparison, the choice of diversification mode for Chinese listed firms is largely based on organizational rationality motivation (to reduce company risks) and individual rationality motivation (in the self-serving interests of the top management). Meanwhile, such conditioning factors as company size, ownership structure, age of being listed, and the industry in which a company is all have significant effects on the choice and degree of diversification for Chinese listed firms. Translated and revised from Guanli shijie 맜理世界(Management World), 2006, (5): 128–135     

Business group affiliation and SMEs’ international sales intensity and diversification: A multi-country study

This study examines the impact of business group (BG) affiliation on international sales intensity and diversification in small and medium-sized enterprises (SMEs) by using a multi-country sample of over 13,000 SMEs from 34 European countries. Drawing on the revised Uppsala internationalization model and network theory, this paper suggests that the effects of BG affiliation on international sales intensity and diversification depend on the geographical dispersion of the BG network ties, the size and the age of the firm, and the institutional support in the home country. Thus, we find that interfirm networks in the form of BGs are a double-edged sword that can have both favorable and unfavorable consequences for international sales, depending on the geographical dispersion of the BG’s ties. In addition, the results reveal that BG affiliation is more beneficial for smaller SMEs and SMEs in countries with lower institutional support that are more dependent on the network resources embedded within BG networks.