Symmetric Modeling of Diversification Strategy and Organizational Structure on Financial Performance: Evidence from China

Diversification is a strategy adopted by many enterprises in the process of expansion. The success of the diversification of an enterprise mainly depends on the choice and implement of strategy; choosing an organizational structure that fits the type of diversification strategy used is fundamental to improving financial performance. Based on the empirical research method, this study establishes a symmetric model of diversification strategy and organizational structure on financial performance and selects data from 613 A-share-listed companies in China, from 2012 to 2016, to test the impacts of unrelated and related diversification strategies on financial performance, as well as the moderating effects of united company, holding company, and multidivisional structures on such relationships. The results show that there is asymmetry between the diversification strategy adopted and financial performance, and a related diversification strategy should be adopted as a priority; the symmetry of an unrelated diversification strategy and holding company structure on financial performance is partially confirmed, and other elements should be adopted, simultaneously, to improve this symmetry; a related diversification strategy and multidivisional structure on financial performance is symmetric. The above findings will provide references for the diversification strategy choice and the organizational structure design of enterprises.

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The moderating effect of board size on the relationship between diversification and tourism firm performance

Tourism Economics ◽

10.1177/1354816618823427 ◽

2019 ◽

Vol 25 (7) ◽

pp. 1084-1104 ◽

Cited By ~ 2

Author(s):

Chen Zheng ◽

Henry Tsai

Keyword(s):

Firm Performance ◽

Tourism Industry ◽

Moderating Effect ◽

Diversification Strategy ◽

Board Size ◽

Unrelated Diversification ◽

Diversification Strategies ◽

Related Diversification ◽

The Relationship

This study examines the effects of diversification strategy and board size on firm performance as well as the moderating effect of board size on the relationship between diversification strategy and firm performance in the Chinese tourism industry from 2008 to 2015. The results show that related diversification positively influenced Chinese tourism firm performance, and unrelated diversification negatively influenced it. Board size was found to negatively moderate the relationship between related diversification and firm performance and to positively moderate the relationship between unrelated diversification and firm performance. In addition, the results imply that small boards are beneficial to Chinese tourism firms when both related and unrelated diversification strategies are implemented.

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Pengaruh Risiko Bisnis, Life Cycle Dan Diversifikasi Terhadap Struktur Modal Serta Hubungannya Dengan Nilai Perusahaan Manufaktur Di Indonesia

Jurnal Manajemen Teori dan Terapan | Journal of Theory and Applied Management ◽

10.20473/jmtt.v9i1.2787 ◽

2016 ◽

Vol 9 (1) ◽

Author(s):

Septi Diana Sari

Keyword(s):

Life Cycle ◽

Capital Structure ◽

Firm Value ◽

Order Theory ◽

Diversification Strategy ◽

Single Segment ◽

Unrelated Diversification ◽

Related Diversification ◽

Positive Effect ◽

The Capital Structure

This study aims to examine the factors that affect the capital structure. The task of the financial manager is to determine the amount of capital structure to enhance shareholder value. Since the capital structure associated with firm value , this study also aimed to examine the effect of capital structure on firm value by considering the company's diversification strategy and corporate life cycle stages . By using the data obtained from the OSIRIS period 2009-2012, researchers used multiple regression test and path analysis to test the hypothesis. From the test results stated that only companies which are in the start-up phase which has a significant positive effect on the capital structure , as well as the diversification strategy has an influence on the capital structure of the company's capital structure with a sequence of related diversification > unrelated diversification > single segment. But when regressed diversification strategy with corporate values, only a single segment strategy and related diversification which significantly affect the value of the company, as well as the positive effect of capital structure on firm value. Most of the results of this study can be explained by the signaling effect and the pecking order theory.

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Corporate or Product Diversification

Oxford Research Encyclopedia of Business and Management ◽

10.1093/acrefore/9780190224851.013.14 ◽

2017 ◽

Cited By ~ 1

Author(s):

Margarethe F. Wiersema ◽

Joseph B. Beck

Keyword(s):

Distribution Channels ◽

Shareholder Wealth ◽

Product Diversification ◽

Strategic Decision ◽

Business Trend ◽

Corporate Diversification ◽

Diversification Strategy ◽

Unrelated Diversification ◽

Strategic Assets ◽

Related Diversification

Corporate or product diversification represents a strategic decision. Specifically, it addresses the strategic question regarding in which businesses the firm will compete. A single-business company that expands its strategic scope by adding new businesses becomes a diversified, multibusiness company. The means by which a company expands its strategic scope is by acquiring businesses, investing in the development of new businesses, or both. Similarly, an already diversified firm can reduce its strategic scope by divesting from or closing businesses. There are two fundamentally different types of corporate diversification strategy, depending on the interrelatedness of the businesses in the company’s portfolio: related diversification and unrelated diversification. Related diversification occurs when the businesses in the company’s portfolio share strategic assets or resources, such as technology, a brand name, or distribution channels. Unrelated diversification occurs when a company’s businesses do not share strategic assets or resources and do not have interrelationships of strategic importance. Companies can pursue both types of diversification simultaneously, and thus have a portfolio of businesses both related and unrelated. In addition to variations in the type of diversification, companies can vary in the extent of their diversification, ranging from business portfolios with very limited diversification to highly diversified portfolios. Decisions regarding the diversification strategy of a firm represent major strategic scope decisions since they impact the markets and industries in which the company will compete. Companies can increase or reduce their level of diversification for a variety of reasons. Economic motives, for example, include the pursuit of economies of multiproduct scale and scope, whereby per-unit costs may be lowered through the increase in sales volume or other fixed-cost reducing benefits associated with growth through diversification. In addition, companies may diversify for strategic reasons, such as enhancement of capabilities or superior competitive positioning through entry into new product markets. Similarly, economic and strategic reasons can motivate the firm to refocus and reduce its level of diversification when the strategic and economic rationales for being in a particular business are no longer justified. The performance consequences of corporate diversification can vary, depending on both the extent of the firm’s diversification and the type of diversification. In general, research indicates that high levels of diversification are value-destroying due to the integrative and complexity-associated costs that administering an extremely diversified portfolio imposes on management. Nevertheless, related diversification, where the company shares underlying resources across its business portfolio (e.g., brand, technology, and distribution channels), can lead to higher levels of performance than can unrelated diversification, due to the potential for enhanced profitability from leveraging shared resources. Corporate diversification was a major U.S. business trend in the 1960s. During the 1980s, however, pressure from the capital market for shareholder wealth maximization led to the adoption of strategies whereby many companies refocused their business portfolios and thus reduced their levels of corporate diversification by divesting unrelated businesses in order to concentrate on their predominant or core business.

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PENGARUH STRATEGI DIVERSIFIKASI DAN KEPEMILIKAN MANAJERIAL TERHADAP KINERJA KEUANGAN

Media Mahardhika ◽

10.29062/mahardika.v20i1.327 ◽

2021 ◽

Vol 20 (1) ◽

pp. 116-127

Author(s):

Violetta Bella D. Glasius ◽

Marini Purwanto

Keyword(s):

Financial Performance ◽

Quantitative Research ◽

Stock Exchange ◽

Linear Regression Analysis ◽

Sampling Technique ◽

Multiple Linear Regression Analysis ◽

Managerial Ownership ◽

Manufacturing Companies ◽

Diversification Strategy ◽

Diversification Strategies

The emergence of the Asean Economic Community (AEC) has an impact on the wider openness of trade between countries so that competition between companies increases. Companies are looking for ways to improve its financial performance so that it can compete among the other competitors. Diversification strategies and managerial ownership can be applied by companies in improving the company's financial performance. Diversification strategy is a strategy that can be used to develop a business, expand market share, and increase competitiveness. Managerial ownership can be used to motivate managerial performance in improving financial performance. This study aims to analyze the effect of diversification strategies and managerial ownership on financial performance. The object this research is using manufacturing companies listed in Indonesia Stock Exchange (IDX) in 2016-2019. This research is a quantitative research with hypothesis testing. The sample used this study were 103 manufacturing companies selected using purposive sampling technique and using multiple linear regression analysis techniques. The results of this study prove that diversification strategy and managerial ownership has no effect on financial performance. The contribution of this research is as additional information regarding the effect of diversification strategies and managerial ownership on financial performance. Limitations of this study is the researchers only collected samples from the official website of the IDX and only use the research object manufacturing company. It is expected that further research can collect data not only on the IDX website but from the company's website and further research is expected to develop a research object.

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PENGARUH STRATEGI DIVERSIFIKASI TERHADAP KINERJA KEUANGAN PERUSAHAAN DENGAN PROFITABILITAS SEBAGAI VARIABEL INTERVENING (Pada Perusahaan Manufaktur yang Terdaftar di BEI Tahun 2015-2019)

JURNAL ILMIAH EDUNOMIKA ◽

10.29040/jie.v5i1.1963 ◽

2021 ◽

Vol 5 (1) ◽

Author(s):

Tri Nurhayati ◽

Risal Rinofah

Keyword(s):

Financial Performance ◽

Stock Exchange ◽

Manufacturing Sector ◽

Sample Selection ◽

Secondary Data ◽

Selection Method ◽

Diversification Strategy ◽

Analysis Technique ◽

Diversification Strategies ◽

Positive Effect

The purpose of this study was to determine the effect of diversification strategies on company financial performance with profitability as an intervening variable. This research was conducted at manufacturing sector companies listed on the Indonesia Stock Exchange 2015-2019. The type of data used is secondary data, while the sample selection method uses purposive sampling, obtained 40 sample companies. The analysis technique used is path analysis using the SPSS application program. The results of this study indicate that the diversification strategy has a positive effect on the company's financial performance, and profitability mediates the effect of the diversification strategy on the company's financial performance. Keywords : Diversification Strategy; Profitability; Corporate’s Financial Performance

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Economic gains around mergers and acquisitions in the construction industry of the United States of America

Canadian Journal of Civil Engineering ◽

10.1139/l04-004 ◽

2004 ◽

Vol 31 (3) ◽

pp. 513-525 ◽

Cited By ~ 15

Author(s):

Jongsoo Choi ◽

Jeffrey S Russell

Keyword(s):

Mergers And Acquisitions ◽

Construction Industry ◽

The United States ◽

Equity Market ◽

Market Returns ◽

Diversification Strategy ◽

Unrelated Diversification ◽

Related Diversification ◽

Research Findings ◽

And Performance

As waves of mergers and acquisitions (M&A) have swept over American industrial business organizations, construction firms have been caught in the middle of the resulting turbulence. Nonetheless, no research has investigated these significant events in the construction industry. Built upon the financial theories and methodology, the overall success level of construction M&A transactions was assessed. The research findings, which were drawn from an analysis of 171 construction M&A transactions, indicate that the performance of construction M&A was positive at an insignificant level, as measured by equity market returns. Whereas the relationship between the type of diversification strategy and performance indicates that while the related diversification strategy has been slightly favored by both theories and empirical research findings over unrelated diversification, no significant performance difference was observed between two diversification strategies.Key words: mergers and acquisitions, diversification strategy, equity market returns.

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Corporate Strategies In The Post-Transition Economy: The Case Of Slovenian Companies

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v27i1.910 ◽

2011 ◽

Vol 27 (1) ◽

Cited By ~ 1

Author(s):

Matej Lahovnik

Keyword(s):

Ownership Structure ◽

Transition Economy ◽

Positive Influence ◽

Company Performance ◽

Growth Strategies ◽

Corporate Strategies ◽

Unrelated Diversification ◽

Diversification Strategies ◽

Related Diversification ◽

Complex Forms

This paper argues that unrelated diversification strategies outperform related diversification strategies.  The author identifies three phases of the internationalisation process.  More detailed analyses of the internationalisation process shows that companies are trying to develop more complex forms of international business activities.  The author also identifies four groups of competencies that are the cornerstones of corporate strategies.  This study reveals that 40.6% of companies diversified through external means, 36.2% diversified through internal means, while 23.2% diversified through both internal and external methods.  There appears to be no statistically significant performance differences among companies regarding external and internal growth strategies.  Internal growth and joint ventures are the most important forms of diversification.  These companies also tend to develop various forms of long-term strategic co-operation.  This process can be crucial for developing competitive advantages.  By comparing the performance of companies regarding ownership structure, the author found that companies with international ownership structure performed better.  In other words, foreign ownership had a positive influence on company performance.

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Factors that Influence Performance of the Industrial Diversification: An Empirical Study Based on Chinese Listed Companies

Key Engineering Materials ◽

10.4028/www.scientific.net/kem.460-461.660 ◽

2011 ◽

Vol 460-461 ◽

pp. 660-666

Author(s):

Zhi Gang Qin

Keyword(s):

Empirical Study ◽

Financial Performance ◽

Listed Companies ◽

Enterprise Management ◽

Diversification Strategy ◽

Industrial Diversification ◽

Unrelated Diversification ◽

Chinese Listed Companies ◽

The Board Of Directors ◽

Cash Inflow

This paper presents an empirical study the factors that influence financial performance of enterprises’ industrial diversification. The method of empirical analysis is comparing the good performance diversified companies with the bad to test which factor affects the financial performance of industrial diversification significantly. Basing on the theoretical analysis, we selected variables that measure corporate governance, diversification strategy, and enterprise management. We ran logistic regression with the data from Chinese listed companies. The result shows that more meetings of the board of directors, less unrelated diversification degree, higher total assets turnover and stronger ability to obtain operating cash inflow will increase the financial performance of enterprises’ industrial diversification.

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