Diversification and risk-adjusted performance: A quantile regression approach

Bong Soo Lee and Ming-Yuan Leon Li

Journal of Banking & Finance, 2012, vol. 36, issue 7, 2157-2173

Abstract: The effect of diversification on firm performance has been debated. We reexamine the effect using a sample of 44,248 observations of non-financial US firms for the 1997–2009 period employing the quantile regression approach. Our empirical results show that the effect of diversification on firm performance is not homogeneous across various quantile levels: the diversification discount (premium) shows up in firms with high (low) RoE quantiles. Further, we find that diversification affects firm risk as well. Therefore, we consider a risk-adjusted performance measure and find that both diversification discount and premium disappear, which is consistent with the risk-return trade-off principle.

Keywords: Diversification; Risk-adjusted performance; Quantile regression (search for similar items in EconPapers)
JEL-codes: C53 G32 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (55)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:7:p:2157-2173

DOI: 10.1016/j.jbankfin.2012.03.020

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