Diversification and Corporate Performance

Based on the two main company business strategies applied, this paper investigates the correlation between business strategies and corporate performance.

First, the paper constructs alternative proxies to measure industrial and international diversification strategies. The paper then investigates the correlation between business strategies and corporate performance. At the same time, the paper tests the robustness of the results against alternative diversification proxies. Furthermore, Campa and Kedia (2002) and Villalonga (2004) declare that companies do not randomly become industrially diversified, but rather endogenously choose to do so. To enhance the robustness of these results, the paper uses a firm fixed effect regression with the subsample to eliminate the effects of the endogeneity of diversification decisions. The subsample includes companies that reported a change in the number of segments during the sample period (Few companies included in the sample report a change of market distribution, and thus, the paper only carries out a robustness test on the endogeneity of industrial diversification decisions.). The paper strictly focuses on the within-firm correlation between changes in performance and changes in diversification. In addition, the paper analyzes differences in the correlation between business strategies and corporate performance among conventional and renewable energy companies.