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Corporate diversification and firm performance: An inverted U-shaped hypothesis

    Authors

    • Sajid Ali
    • Shujahat Haider Hashmi
    • Tahir Mehmood
,
10.33844/ijol.2016.60389
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Abstract

This study aimed to investigate the relationship between corporate diversification and firm performance in a developing country. Previous studies have found that the mixed results have been established between these two constructs in developed countries such as linear, u-shaped or inverted u-shaped relationship. To this end, a sample of 141 non-financial companies over the period of 2003 to 2013 listed on Pakistani stock market was used to analyze the impact of diversification strategy on the performance of firm. Corporate diversification is divided into two types including product and geographic diversification. The findings of the study demonstrated that an inverted u-shaped relationship existed as performance increased up to a certain level due to the related diversification strategy and then it fell down drastically. It showed that too much diversification creates agency problems and internal inefficiencies. It has implications for agency problems, weak corporate governance structures, and family relationships.

Keywords

  • Product Diversification
  • Geographic Diversification
  • Firm Performance
  • Inverted U-Shaped Relationship
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International Journal of Organizational Leadership
Volume 5, Issue 4
October 2016
Page 393-410
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APA

Ali, S. , Haider Hashmi, S. and Mehmood, T. (2016). Corporate diversification and firm performance: An inverted U-shaped hypothesis. International Journal of Organizational Leadership, 5(4), 393-410. doi: 10.33844/ijol.2016.60389

MLA

Ali, S. , , Haider Hashmi, S. , and Mehmood, T. . "Corporate diversification and firm performance: An inverted U-shaped hypothesis", International Journal of Organizational Leadership, 5, 4, 2016, 393-410. doi: 10.33844/ijol.2016.60389

HARVARD

Ali, S., Haider Hashmi, S., Mehmood, T. (2016). 'Corporate diversification and firm performance: An inverted U-shaped hypothesis', International Journal of Organizational Leadership, 5(4), pp. 393-410. doi: 10.33844/ijol.2016.60389

CHICAGO

S. Ali , S. Haider Hashmi and T. Mehmood, "Corporate diversification and firm performance: An inverted U-shaped hypothesis," International Journal of Organizational Leadership, 5 4 (2016): 393-410, doi: 10.33844/ijol.2016.60389

VANCOUVER

Ali, S., Haider Hashmi, S., Mehmood, T. Corporate diversification and firm performance: An inverted U-shaped hypothesis. International Journal of Organizational Leadership, 2016; 5(4): 393-410. doi: 10.33844/ijol.2016.60389

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