Product Line Diversification and Its Impact on Firm Performance

The objective of the study is to measure product diversification’s impact on insurance firm’s financial performance in Pakistan. Analysis are carried out to examine how ownership structure, capitalization, group membership, firm size, diversification across business lines, industry concentration affects firm’s financial performance. Data from 2009-2019 is collected to measure the impact of diversification (entropy) on the risk- adjusted returns. Findings of the study reveal that business line diversification has strong positive effect on firm performance (for both ROA and ROE) which means that diversified firms perform better than non-diversified firms. For managers these findings are useful as they propose the need for diversification, capitalization, increase in size and group affiliation to enhance firm profitability.

Diversified firms: existence and behaviors

We propose a micro-founded theory of diversified firms. The theory suggests that diversified firms exist because they allow better deployment of factors that, because of sub-additive contracting costs, are hard to trade in fractions. Firms diversify into industries in which these factors are more productive than any alternatives available in the factor market. Like markets, diversified firms allow specialization by enabling factors to be used on a larger scale. The individual businesses making up a diversified firm exhibit specific similarities in behavior.

Chinese Power and the State-Owned Enterprise

China has become a leading source of outward foreign direct investment (FDI), and the Chinese state exercises a unique degree of influence over its firms. We explore the patterns of political influence over FDI using a comprehensive firm-level data set on Chinese outward FDI from 2000 to 2013. Using six country-level measures of affinity for China, we find that state-owned and globally diversified firms appear to conform most closely to official guidance. Official investment directives and state visits link investments to state policies; Taiwan recognition and Dalai Lama meetings anchor our political interpretations; and UN General Assembly voting and temporary UN Security Council membership suggest that this intervention may be systematic. The results are robust to country, year, and sector fixed effects, and most do not hold for private or small firms. The results suggest that China uses FDI by prominent state-owned enterprises as an instrument to promote its foreign policy.

Diversification Strategy and Good Governance: Does It Affect Firm’s Leverage?

This paper aims to analyze whether firm diversification affects firm leverage in developing countries. This research model is based on the agency theory view that focuses on diversification in leverage through good governance mechanisms. The data comes from 43 companies from 215 observation companies listed on the Indonesia Stock Exchange in the 2014–2018 period, supporting the co-insurance hypothesis; our findings suggest a positive effect of diversification on debt levels. Our findings show that cost advantages occur in diversified firms, including higher debt ratios in the firm’s capital structure. These effects are more substantial when firms have better corporate governance. These findings add value to the existing literature on the relationship between firm diversification, corporate management, and leverage and can be helpful for managers and policy-makers regarding the evaluation of diversification strategy and corporate governance implementations in Indonesia that has been widely studied.DOI: 10.26905/jkdp.v25i3.5758

The Level of Diversification on the Firms of the Iberian Market

It is a fact that a company’s durability may depend on its capacity to readjust to a world in continuous change. Diversification strategies should be a security device, reduce the risk, and at the same time, search for possible profitable opportunities. Therefore, when a diversified firm follows one of its business sections and realizes that the performance is worse than foreseen, this negative impact may be diminished by other segments with better performance. Contextually, the current study aims to determine a correlation between value and corporate diversification in the Iberian market. We use Tobin’s Q as the measure for value and the Herfindahl Index to measure diversification. In addition to the study of correlation, this paper also analyses the level of diversification for the firms that integrate the Iberian market and if their market value is above or below their book value. Using these metrics, we found a negative correlation between value and diversification in the Iberian Market. In our sample, we also found that highly diversified firms performed worse than focused firms on average. In the Portuguese sample, we were able to determine the level of diversification that maximizes the Tobin’s Q of a firm. According to Tobin's Q, our sample was characterized by a low level of diversification in general and that the companies were slightly overvalued.

Sustainability in FinTechs: An Explanation through Business Model Scalability and Market Valuation

Framework: Financial Technology (FinTech) is an industry composed of diversified firms that combine financial services with innovative technologies. The research question and main goal are attempting to answer whether they are more similar to traditional banks or trendy technological firms deploying their innovativeness to favor financial inclusion and sustainability. Justification: Evaluators may wonder if FinTechs follow the typical evaluation patterns of bank/financial intermediaries or those of technological firms. Preliminary empirical evidence shows that the latter interpretation is the one consistent with the stock-market mood. Objective: This study goes beyond the extant literature, analyzing the differences between FinTechs and traditional banks in market valuation, and showing the potential for digital interaction and cross-pollination of complementary business models. Methodology: The differences will be empirically analyzed with the stock market valuation and the multipliers associated with these firms. Results: The main contribution of this paper is that the appraisal approaches of FinTechs follow those of technological startups, having a revenue model much more scalable than that of a typical bank. FinTechs may so provide a solution for sustainable finance with microfinance and crowdfunding among others. FinTechs and traditional banks may eventually converge towards a common market exploiting co-opetition strategies.