A comprehensive measure of product and international diversifications

Murali Sambasivan, Ebrahim Asrarhaghighi, Azmawani Abd Rahman, Zainal Abidin Mohamed

Abstract


Assessing the relationship between diversification
and performance has attracted a lot of attention for
decades. However, the results of the studies about
the relationship are inconclusive. This
inconclusiveness might be due to using different
measures of diversification and measurement
problems. We developed a diversification measure
and tested its predictive validity against the Total
Global Diversification measure as the optimal
measure of diversification. The new measure
outperformed, and showed sigmoid relationship
between international diversification and Tobin’s Q.
Moreover, we found that product diversification did
not have an effect on firms’ performance but
positively moderated the relationship between
international diversification and performance.

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