Effect of product and geographic diversification on company performance: Evidence during an economic crisis

Pablo Garrido-Prada, Maria Jesús Delgado-Rodriguez and Desiderio Romero-Jordán

European Management Journal, 2019, vol. 37, issue 3, 269-286

Abstract: Based on a novel sample of Spanish listed companies from nonfinancial sectors, we explore the effect of product and geographic diversification on company performance during an economic downturn. The study develops comprehensive models to understand the interaction effect of both strategies on company performance. We find a U-shaped geographic diversification–performance relationship and no evidence of a positive effect from product diversification, unless combined with high levels of geographic diversification. The results show that companies improved their performance by combining these strategies. The results are robust after controlling for the endogeneity of both types of diversification. Our findings highlight that geographic diversification is an effective and valuable strategy in economic downturns. Furthermore, this study confirms the importance of the interaction between product and geographic diversification to determine the total effect of product or geographic diversification on company performance.

Keywords: Product diversification; Geographic diversification; Company performance; Economic crisis; Corporate diversification strategy (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eurman:v:37:y:2019:i:3:p:269-286

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DOI: 10.1016/j.emj.2018.06.004

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