Corporate diversification and efficiency of manufacturing firms listed in Bursa Malaysia

Document Type : Research Paper

Authors

1 Research, Development and Islamic Studies Center, Securities and Exchange Organization, Tehran, Iran

2 Faculty of Management, Universiti Teknologi Malaysia, Skudai, Johor Bahro, Malaysia

3 Faculty of Science, Universiti Teknologi Malaysia, Skudai, Johor Bahro, Malaysia

Abstract

There is little consensus on the corporate diversification-efficiency relationship in the diversification literature. The study aims to contribute to the literature by looking jointly at two dimensions of corporate diversification as product diversification and international diversification and the relationship between them. The results show negative relationship between product diversification and efficiency, international diversification and efficiency and corporate diversification and efficiency in manufacturing firms listed in Bursa Malaysia. This study also has described main variables which have an impact on the diversification-efficiency relationship and has guided managers on how to pursue an optimal diversification strategy.

Keywords

Main Subjects

References

Ahmad, A. C.; Ishak, Z., & Manaf, N. A. A. (2003). “Corporate governance, ownership structure and corporate diversification: Evidence from the Malaysian listed companies”. Asian Academy of Management Journal, 8, 67-89.
Anderson, R. C.; Bates, T. W.; Bizjak, J. M. & Lemmon, M. L. (2000). “Corporate governance and firm diversification”. Financial Management, 5-22.
Banker, R. D.; Charnes, A. & Cooper, W. W. (1984). “Some models for estimating technical and scale inefficiencies in data envelopment analysis”. Management science, 1078-1092.
Berger, P. & Ofek, E. (1995). “Diversification's effect on firm value”. Journal of Financial economics, 37(1), 39-65.
Bhargava, A. F., L. & Narendranathan, W. (1982). “Serial Correlation and the Fixed Effects Model”. Review of Economic Studies, 49(4), 533–549.
Bobillo, A. M.; López-Iturriaga, F. & Tejerina-Gaite, F. (2010). “Firm performance and international diversification: The internal and external competitive advantages”. International Business Review, 19(6), 607-618.
Brewer, H. (1981). “Investor benefits from corporate international diversification”. Journal of Financial and Quantitative Analysis, 16(1), 113-126.
Buckley, P. J.; Dunning, J. H. & Pearce, R. D. (1978). “The influence of firm size, industry, nationality, and degree of multinationality on the growth and profitability of the World’s largest firms, 1962–1972”. Review of World Economics, 114(2), 243-257.
Cernas Ortiz, D. A. (2011). Examining Curvilinearity and Moderation in the Relationship between the Degree of Relatedness of Individual Diversification Actions and Firm Performance., UNIVERSITY OF NORTH TEXAS.
Chakrabarti, A.; Singh, K. & Mahmood, I. (2007). “Diversification and performance: evidence from East Asian firms”. Strategic Management Journal, 28(2), 101-120.
Chang, S. C. & Wang, C. F. (2007). “The effect of product diversification strategies on the relationship between international diversification and firm performance”. Journal of World Business, 42(1), 61-79.
Charnes, A. & Cooper, W. W. (1962). “Programming with linear fractional functionals”. Naval Research logistics quarterly, 9(3‐4), 181-186.
Charnes, A.; Cooper, W. W.; & Rhodes, E. (1978). “Measuring the efficiency of decision-making units”. European Journal of Operational Research, 2, 429-444.
Chen, C. J. & Yu, C. M. J. (2012). “Managerial ownership, diversification, and firm performance: Evidence from an emerging market”. International Business Review. 21(Issue 3), 518-534.
Claessens, S.; Djankov, S.; Fan, J. & Lang, L. (2001). “The pattern and valuation effects of corporate diversification”. World Institute for Development Economics Research.
Claessens, S.; Djankov, S.; Fan, J. P. H. & Lang, L. H. P. (2003). “When does corporate diversification matter to productivity and performance? Evidence from East Asia”. Pacific-Basin Finance Journal, 11(3), 365-392.
Claessens, S.; Djankov, S.; Fan, J. P. H.; Lang, L. H. P. & Fomento, B. I. d. R. y. (1999). Corporate diversification in East Asia: the role of ultimate ownership and group affiliation: World Bank.
Comment, R. & Jarrell, G. A. (1995). “Corporate focus and stock returns”. Journal of Financial Economics, 37(1), 67-87.
Contractor, F. J.; Kundu, S. K. & Hsu, C. C. (2003). “A three-stage theory of international expansion: The link between multinationality and performance in the service sector”. Journal of international business studies, 33(1), 48-60.
Cooper, W. W.; Seiford, L. M. & Tone, K. (2006). Introduction to data envelopment analysis and its uses: with DEA-solver software and references: Springer Verlag.
Daniels, J. D. & Bracker, J. (1989). “Profit performance: Do foreign operations make a difference?”. Management International Review, 46-56.
Daud, W.; Salamudin, N. & Ahmad, I. (2009). “Corporate diversification and performance”. IBEJ, 2(1), 01-18.
Delios, A. & Beamish, P. W. (2001). “Geographic scope, product diversification and the corporate performance of Japanese firms”. Japanese subsidiaries in the new global economy, 47.
Denis, D.; Denis, D. & Yost, K. (2002). “Global diversification, industrial diversification, and firm value”. The Journal of Finance, 57(5), 1951-1979.
Denis, D. J.; Denis, D. K. & Sarin, A. (1997). “Agency problems, equity ownership, and corporate diversification”. Journal of finance, 135-160.
Doaei, M.; Anuar, M. B. A. & Hamid, N. I. N. A. (2012). “Corporate 
Diversification and Financial Performance: A Review of Literature”. Asian Journal of Finance & Accounting, 4(2), 56-74.
Edwards, C. D. (1955). Conglomerate bigness as a source of power. in G.J. Stigler (ed), NewYork: Princeton University Press.
Emrouznejad, A.; Parker, B. R. & Tavares, G. (2008). “Evaluation of research in efficiency and productivity: A survey and analysis of the first 30 years of scholarly literature in DEA”. Socio-Economic Planning Sciences, 42(3), 151-157.
Errunza, V. R. & Senbet, L. W. (1984). “International corporate diversification, market valuation, and size-adjusted evidence”. The Journal of Finance, 39(3), 727-743.
Fan, J. P. H.; Huang, J.; Oberholzer-Gee, F.; Smith, T. D. & Zhao, M. (2008). “Diversification of Chinese companies: an international comparison”. Chinese Management Studies, 2(1), 6-13.
Geringer, J.; Tallman, S. & Olsen, D. (2000). “Product and international diversification among Japanese multinational firms”. Strategic Management Journal, 21(1), 51-80.
Geringer, M. J.; Beamish, P. W. & DaCosta, R. C. (1989). “Diversification strategy and internationalization: Implications for MNE performance”. Strategic Management Journal, 10(2), 109-119.
Greene, W. (2003). Econometric analysis: Prentice Hall.
Haar, J. (1989). “A comparative analysis of the profitability performance of the largest US, European and Japanese multinational enterprises”. Management International Review, 5-18.
Hall, E. H. & Lee, J. (2010). “Profitability and Curvilinearity: A Study of Product and International Diversification”. The Journal of International Management Studies, 5(1).
Hitt, M. A.; Hoskisson, R. E. & Ireland, R. D. (1994). “A mid-range theory of the interactive effects of international and product diversification on innovation and performance”. Journal of management, 20(2), 297-326.
Hitt, M. A.; Hoskisson, R. E. & Kim, H. (1997). “International diversification: Effects on innovation and firm performance in product-diversified firms”. Academy of Management Journal, 767-798.
Hoskisson, R. E. & Hitt, M. A. (1990). “Antecedents and performance outcomes of diversification: A review and critique of theoretical perspectives”. Journal of management, 16(2), 461-509.
Ishak, Z. & Napier, C. (2004). Corporate Ultimate Ownership and Corporate Diversification in Malaysia. Paper presented at the The 
Fourth Asia Pacific Interdisciplinary Research in Accounting Conference.
Ishak, Z. & Napier, C. (2006). “Expropriation of Minority Interests and Corporate Diversification in Malaysia”. Asian Academy of Management Journal of Accounting and Finance, 2, 85-113.
Jain, S.; Triantis, K. P. & Liu, S. (2011). “Manufacturing performance measurement and target setting: A data envelopment analysis approach”. European Journal of Operational Research. 214(1), 616-626.
Jensen, M. C. (1986). “Agency costs of free cash flow, corporate finance, and takeovers”. The American Economic Review, 323-329.
Jensen, M. C. & Meckling, W. H. (1976). “Theory of the firm: Managerial behavior, agency costs and ownership structure”. Journal of Financial Economics, 3(4), 305-360.
Jones, G. R. & Hill, C. W. L. (1988). “Transaction cost analysis of strategy‐structure choice”. Strategic Management Journal, 9(2), 159-172.
Jung, J. & Chan-Olmsted, S. M. (2005). “Impacts of media conglomerates' dual diversification on financial performance”. Journal of Media Economics, 18(3), 183-202.
Kang, J. (2013). “The relationship between corporate diversification and corporate social performance”. Strategic Management Journal, 34(1), 94-109.
Khanna, T. & Palepu, K. (2000). “Is group affiliation profitable in emerging markets? An analysis of diversified Indian business groups”. The Journal of Finance, 55(2), 867-891.
Khanna, T. & Rivkin, J. W. (2001). “Estimating the performance effects of business groups in emerging markets”. Strategic Management Journal, 22(1), 45-74.
Kim, H.; Hoskisson, R. E. & Wan, W. P. (2004). “Power dependence, diversification strategy, and performance in keiretsu member firms”. Strategic Management Journal, 25(7), 613-636.
Kim, W. C.; Hwang, P. & Burgers, W. P. (1993). “Multinationals' diversification and the risk‐return trade‐off”. Strategic Management Journal, 14(4), 275-286.
Kotabe, M.; Srinivasan, S. S. & Aulakh, P. S. (2002). “Multinationality and firm performance: The moderating role of R&D and marketing capabilities”. Journal of international business studies, 79-97.
Lang, L. & Stulz, R. (1994). “Tobin's q, corporate diversification, and firm 
performance”. Journal of political economy, 102(6), 1248-1280.
Lee, K.; Peng, M. W. & Lee, K. (2008). “From diversification premium to diversification discount during institutional transitions”. Journal of World Business, 43(1), 47-65.
Lin, W. C.; Liu, C. F. & Chu, C. W. (2005). “Performance efficiency evaluation of the Taiwan’s shipping industry: an application of data envelopment analysis”. Transportation Stud, 5, 467-476.
Lins, K., & Servaes, H. (2002). “Is corporate diversification beneficial in emerging markets?”. Financial Management, 31(2), 5-31.
Lu, J. W. & Beamish, P. W. (2001). “The internationalization and performance of SMEs”. Strategic Management Journal, 22(6‐7), 565-586.
Mahmood, A. (2000). “Export specialization and competitiveness of the Malaysian manufacturing: trends, challenges, and prospects”. Paper presented at the Conference on International Trade Education and Research, Monash University, Australia.
Michel, A. & Shaked, I. (1986). “Multinational corporations vs. domestic corporations: Financial performance and characteristics”. Journal of international business studies, 89-100.
Morck, R. & Yeung, B. (1991). “Why investors value multinationality”. Journal of Business, 165-187.
Muñoz-Bullón, F. & Sanchez-Bueno, M. J. (2011). “Is there new evidence to show that product and international diversification influence SMEs' performance?”. EuroMed Journal of Business, 6(1), 63-76.
Neves, J. C. & Lourenço, S. (2009). “Using data envelopment analysis to select strategies that improve the performance of hotel companies”. International Journal of Contemporary Hospitality Management, 21(6), 698-712.
Ngah-Kiing Lim, E.; Das, S. S. & Das, A. (2009). “Diversification strategy, capital structure, and the Asian financial crisis (1997–1998): Evidence from Singapore firms”. Strategic Management Journal, 30(6), 577-594.
Palich, L.; Cardinal, L. & Miller, C. (2000). “Curvilinearity in the diversification-performance linkage: An examination of over three decades of research”. Strategic Management Journal, 21(2), 155-174.
Patrick, O. O. (2012). “Product Diversification and Performance of Manufacturing Firms in Nigeria”. European Journal of Business and Management, 4(7), 226-233.
Penrose, E. G. (1959). The theory of the growth of the firm. New York: John Wiley.
Qian, G.; Li, L.; Li, J. & Qian, Z. (2008). “Regional diversification and firm performance”. Journal of International Business Studies, 39(2), 197-214.
Ravichandran, T.; Liu, Y.; Han, S. & Hasan, I. (2009). “Diversification and firm performance: exploring the moderating effects of information technology spending”. Journal of Management Information Systems, 25(4), 205-240.
Rouse, P.; Harrison, J. & Chen, L. (2010). “Data Envelopment Analysis: A Practical Tool to Measure Performance”. Australian Accounting Review, 20(2), 165-177.
Sambharya, R. B. (1995). “The combined effect of international diversification and product diversification strategies on the performance of US-based multinational corporations”. MIR: Management International Review, 197-218.
Servaes, H. (1996). “The value of diversification during the conglomerate merger wave”. Journal of finance, 1201-1225.
Seth, A.; Song, K. P. & Pettit, R. (2000). “Synergy, managerialism or hubris? An empirical examination of motives for foreign acquisitions of US firms”. Journal of international business studies, 31(3), 387-405.
Singh, M.; Davidson, W. N. & Suchard, J. A. (2003). “Corporate diversification strategies and capital structure”. The Quarterly Review of Economics and Finance, 43(1), 147-167.
Singh, P. C. D. A.; Gaur, A. P. A. S. & Schmid, F. P. (2010). “Corporate diversification, TMT experience, and performance”. Management International Review, 50(1), 35-56.
Stulz, R. (1990). “Managerial discretion and optimal financing policies”. Journal of Financial Economics, 29, 3-28.
Tallman, S. & Li, J. (1996). “Effects of international diversity and product diversity on the performance of multinational firms”. Academy of Management Journal, 179-196.
Talluri, S. (2000). “Data envelopment analysis: models and extensions”. Decision Line, 31(3), 8-11.
Toloo, M. & Nalchigar, S. (2011). “A new DEA method for supplier selection in presence of both cardinal and ordinal data”. Expert Systems with Applications. 38, 14726–14731.
Tongli, L.; Ping, E. J. & Chiu, W. K. C. (2005). “International diversification and performance: evidence from Singapore”. Asia Pacific Journal of Management, 22(1), 65-88.
Tsen, W. H. (2005). “The Determinants of Foreign Direct Investment in the 
Manufacturing Industry of Malaysia”. Journal of economic cooperation, 26(2), 91-110.
Wan, C. C. (1998). “International diversification, industrial diversification and firm performance of Hong Kong MNCs”. Asia Pacific Journal of Management, 15(2), 205-217.
Williamson Oliver, E. (1985). The economic institutions of capitalism: Firms, markets, relational contracting. New York.
Yeh, Q. J. (1996). “The application of data envelopment analysis in conjunction with financial ratios for bank performance evaluation”. Journal of the Operational Research Society, 980-988.
Yoshida, Y. (2010). Is this time different for Asia?: Evidence from stock Markets. Kyushu Sangyo University, Faculty of Economics.
Interdisciplinary Journal of Management Studies (Formerly known as Iranian Journal of Management Studies)
Volume 8, Issue 4 - Serial Number 4
October
October 2015
Pages 523-544

Files

Share

How to cite

Statistics