The risk implications of diversification: Integrating the effects of product and geographic diversification

Mammen, Jan; Alessandri, Todd M.; Weiss, Martin A.

doi:10.1016/j.lrp.2019.101942

Cited by 18 publications

(20 citation statements)

References 74 publications

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“…Denis et al (2002) found a comparable conglomerate discount for geographically diversified firms, as prior studies for product diversified firms did (Berger & Ofek, 1995). Finally, Mammen et al (2019) found product diversification to decrease firm risk, while geographic diversification increases firm risk.…”

Section: Introductionsupporting

confidence: 51%

“…Several papers have shown a risk-reducing effect of corporate diversification (Bettis & Mahajan, 1985;Lubatkin & Chatterjee, 1994;Mammen et al, 2019). In contrast to shareholders, bondholders have a capped pay-off function.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Expanding across industries provides a firm with several options to reduce risk and decrease the likelihood of bankruptcy. If it faces a market decline in one industry, it can shift resources to an industry with a more favorable environment (Mammen et al, 2019).…”

Section: Literature Reviewmentioning

confidence: 99%

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Wealth creation through corporate diversification – the bondholders’ perspective

Mammen

2020

Investment Management and Financial Innovations

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The influence of corporate diversification on firm value is an important field in strategy research. Studies in strategic management and finance research have analyzed value creation through product and geographic diversification from a shareholder’s perspective. This study completes this picture by analyzing the bondholders’ perspective. It is suggested that product diversification creates value for bondholders, while geographic diversification destroys bondholder value. The hypotheses are tested on a sample of S&amp;P 1,200 firms in 2001–2011 using a fixed-effects panel model. Drawing on prior research, bondholder value creation is measured using the Merton model. The empirical results support the hypothesis that bondholders gain value through product diversification but lose value through geographic diversification. Considering prior research results, these results show that product diversification is preferable for bondholders, while geographic diversification is preferable from a shareholder’s perspective. The opposite effects of both diversification strategies on shareholders, respectively, bondholders offer an important new perspective on corporate diversification. The results show that firms with a high level of corporate debt should struggle to justify a strategy involving geographic dispersion of activities and support a more diversified product portfolio strategy. This study also offers several avenues for investigating the bondholder’s perspective on corporate diversification in more detail.

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Section: Introductionsupporting

confidence: 51%

Section: Literature Reviewmentioning

confidence: 99%

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Wealth creation through corporate diversification – the bondholders’ perspective

Mammen

2020

Investment Management and Financial Innovations

Self Cite

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“…The proponents of the Resource-Based View (RBV) (e.g., Wernerfelt, 1984;Barney, 1991;Grant, 1991;Peteraf, 1993) argue that this is because PD facilitates the use of strategic resources and exploits economies of scope and scale, and/or access to several geographic markets (i.e. countries), while market risks are diversified (Geringer et al, 2000;Mammen et al, 2021). Yet is this the case regardless of the specific type of diversification strategy adopted and the economic context faced by SMEs managers?…”

Section: Theoretical Background and Hypothesesmentioning

confidence: 99%

“…Two of the most important strategic decisions that firm managers must make are related to the diversification or otherwise of both products and markets. Product and geographic diversification (PD and GD, respectively) are typically considered to be two key strategies for business development and growth (Ansoff, 1965;Mammen et al, 2021). These two decisions are also made simultaneously by firm managers.…”

Section: Introductionmentioning

confidence: 99%

Identifying the proper mix of growth-seeking strategies for Spanish SMEs: An analysis during times of economic boom and crisis

Benito-Osorio,

Colino-Fernández,

Guerras-Martín

et al. 2023

Small Bus Int Rev

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This study explores the potential effects of different combinations of growth-seeking strategies on performance in SMEs during long times of economic boom and crisis. Our hypotheses are tested on a representative sample of Spanish SMEs between 1994 and 2014. During these years Spain suffered one of the periods of greatest economic stability/growth in recent years (1994-2008), followed immediately by a period of severe crisis (2009-2014). Using dynamic panel data models, our findings reveal that four combinations exhibit a positive and statistically significant effect on performance in times of economic boom: a related product strategy combined with low, moderate, or high levels of internationalization, and an unrelated one combined with a moderate level of internationalization. Meanwhile, we find only two combinations with a positive impact on SME performance in times of crisis: a related product strategy combined with low and moderate levels of internationalization, respectively

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How diversification of products impact emissions in China: a provincial perspective

Ul-Haq,

Visas,

Can

et al. 2023

Environ Sci Pollut Res

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The risk implications of diversification: Integrating the effects of product and geographic diversification

Cited by 18 publications

References 74 publications

Wealth creation through corporate diversification – the bondholders’ perspective

Wealth creation through corporate diversification – the bondholders’ perspective

Identifying the proper mix of growth-seeking strategies for Spanish SMEs: An analysis during times of economic boom and crisis

How diversification of products impact emissions in China: a provincial perspective

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