A deeper look into the geographic and product diversification-performance relationship

Resumen

This chapter extends previous empirical studies developing separate hypotheses in which each type of diversification may moderate the performance of the other type differently. Wet also expands previous results exploring the side effect of product and geographic diversification on relationship between company performance and other firm characteristics. For this propose, we used a novel panel data set comprising 85 Spanish listed companies from non– financial sectors during 2006–2011 and We conducted a Structural Threshold Regression correcting for the endogeneity of both types of diversification and firm specific characteristics. The results reveal that geographic diversification positively influences the product diversification–performance relationship. But product diversification has no clear impact on geographic diversification-performance relationship. Further, results portray that a minimal upfront investment in geographic diversification strategy is needed to generate a positive effect on product diversification performance. Finally, product diversification has a significant positive side effect on liquidity performance and geographic diversification shapes the long-term debt performance. The findings imply that the combination of both, product and geographic strategies, are needed to fully determinate diversification performance. Further, this paper offers guideline for managers to improve firm performance by combining both strategies.