Diversification and Performance

Literature Review

Overview

Geographic diversification refers to a firm's expansion beyond its border. Capar and Kotabe (2003) viewgeographic diversification as a firm's expansion beyond the borders of its home country across different countries and geographical regions. They posit that the terms, international diversification, multinationality, and international diversity, are often used interchangeably in the diversification literature. According to Qian (1997), international market diversification refers to firms which are horizontally or vertically integrated across different national sub-markets.

The findings show that geographic factors have the largest influence on the volatility of international real estate returns. Traditionally, investment managers in direct real estate have focused on a single geographical region.

In the geographic diversification literature, the consensus view that the main reason for geographic expansion is exploitation of market imperfections (Rugman, 1979) has led to extensive empirical testing of the linear and positive relationship between geographic diversification and performance. These research have produced mixed results about the effects of geographic diversification, which has been inconclusive and contradictory(Geringer et al. 2000). Some empirical evidence ([9] Delios and Beamish, 1999; [3] Annvarajula et al. , 2005) supported a positive linear effect and showed a positive relationship between geographic diversification and performance. Others ([27] Siddharthan and Lall, 1982; [19] Michel and Shaked, 1986) found a negative relationship. More recently, taking into account the transaction and coordination costs involved in internationalization, some scholars advanced the possibility of a curvilinear relationship between the two. Some studies ([13] Hitt et al. , 1997; [11] Gomes and Ramaswamy, 1999; [5] Capar and Kotabe, 2003) found an inverted-U relationship between the extent of geographic spread and performance...