Firm diversification and performance: the roles of geographic location and product relatedness

Gu, Jinlong (2018) Firm diversification and performance: the roles of geographic location and product relatedness. Doctoral thesis (PhD), University of Sussex.

[img] PDF - Published Version
Download (1MB)


There is a growing body of research on the performance differences resulting from firms' corporate-level strategies, including international and product diversifications. However, previous studies provide mixed findings, in part due to a lack of consideration of important variables (e.g., location, ownership and product relatedness) in those studies.

The first objective of this PhD thesis is to examine the multinationality-performance relationship in an emerging economy context. Previous research has generally ignored how the location choice and ownership structure shapes the above relationship. Specifically, I analyse whether developed/developing host countries and private/state ownership have different impacts on the multinationality-performance link. Based on more than 1000 firms from 44 emerging economies in 2004-2013, I find that the returns to multinationality are higher for investment in developed countries than in developing countries, and are higher for private-owned enterprises than state-owned enterprises.

The literature on product diversification and financial performance has generally been limited to the impact of product relatedness on the product diversification-performance link, while relatedness itself is a rather broad concept. The second objective of the thesis is to fill this gap by providing a finer classifcation of product relatedness from a value chain perspective. Specifically, we distinguish between horizontal versus vertical relatedness, as well as upstream versus downstream relatedness, and examine whether these diversifications have different impacts on financial performance. Drawing from more than 12,000 firms from 63 countries during the period 2004-2013, the results suggest that vertical and upstream diversifications are superior diversification strategies in terms of improving firm performance.

In addition to examining the above individual effects of international and product diversifications on firm performance, as the third objective of this thesis, I analyse their joint effects. Previous studies pay limited attention to the underlying factors that strengthen or weaken the joint effect. More specifically, I aim to examine how industrial and national contexts shape the joint effects. Drawing on the same dataset, the results suggest that the negative joint effect of international and product diversification is stronger for firms in high-tech than low-tech sectors, and is weaker for developed country firms than emerging economy firms.

The growing trend of cross-border acquisitions, as one establishment mode of foreign direct investment, is increasingly catching scholars' attention. The fourth objective of this thesis is to examine whether a foreign acquisition premium exists. Existing literature on foreign acquisition premium has generally ignored the acquirer's characteristics. My research aims to examine the impact of acquisition type (foreign/domestic) on firm productivity performance, with the consideration of acquirer's characteristics, including acquirer's location and multinationality. Using the dataset for more than 3,000 firm-year observations from 45 economies in 2004-2013, the results indicate the existence of a foreign acquisition premium. This premium is weaker for acquirers from developing economies than developed economies, and is strengthened for acquirers with high multinationality.

Item Type: Thesis (Doctoral)
Schools and Departments: University of Sussex Business School > Strategy and Marketing
Subjects: H Social Sciences > HG Finance > HG0180 By region or country > HG0185 Other regions or countries > HG0195 Developing countries
H Social Sciences > HG Finance > HG4001 Finance management. Business finance. Corporation finance
Depositing User: Library Cataloguing
Date Deposited: 22 Aug 2018 10:11
Last Modified: 23 Sep 2020 06:55

View download statistics for this item

📧 Request an update