Skip to main content

Advertisement

SpringerLink
Log in

Corporate diversification and efficiency: evidence from Taiwanese top 100 manufacturing firms

  • Original Paper
  • Published:
Operational Research Aims and scope Submit manuscript

Abstract

For at least the last two decades, diversification has been an important issue in the strategic management research. This paper explores how diversification affects the corporate performance of the top 100 manufacturing companies in Taiwan, which were selected based on a ranking survey of Taiwanese manufacturing firms conducted by Common Wealth Magazine in 2014. This paper adopts a dynamic data envelopment analysis model to estimate efficiency in the first stage, and adopts OLS regression analysis in the second stage from 2009 to 2013. Two proxies, namely the Entropy approach and the Herfindahl–Hirschman Index, are used to proxy for diversification. The results indicate that diversification has positive impacts on dynamic efficiency, after controlling firm-specific factors. Concisely, this study empirically proves that diversification is an important corporate strategy for improving corporate performance over long-term periods. Overall, “putting eggs in various baskets” enable companies to not only survive, but also sustain competitive advantage in today’s challenging business world.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Similar content being viewed by others

Notes

  1. In this dynamic production process model, we highlight the macro perspective of a corporate performance over a longitudinal period using the inputs and outputs in the accounting concept, all of which are in line with prior studies such as Wang et al. (2014). While revenue may be a measure of a corporate outcome, market value provides a more detailed description of what a company has achieved in its production model. Specifically, the former is an accounting-based measure, while the latter is a market-based measure of corporate performance.

References

  • Acar W, Sankaran K (1999) The myth of the unique decomposability: specializing the Herfindahl and entropy measures? Strateg Manag J 20:969–975

    Article  Google Scholar 

  • Amit R, Livnat J (1988) Diversification strategies, business cycles and economic performance. Strateg Manag J 9:99–110

    Article  Google Scholar 

  • Amsden A, Chu W-W (2003) Beyond late development: Taiwan’s upgrading policies. Cambridge University Press, Cambridge

    Google Scholar 

  • Ang JS, Ding DK (2006) Government ownership and the performance of government-linked companies: the case of Singapore. J Multinatl Financ Manag 16:64–88

    Article  Google Scholar 

  • Ansoff HI (1957) Strategies for diversification. Harvard Bus Rev 35:113–124

    Google Scholar 

  • Banker RD, Natarajan R (2008) Evaluating contextual variables affecting productivity using data envelopment analysis. Oper Res 56:48–58

    Article  Google Scholar 

  • Berger PG, Ofek E (1995) Diversification’s effect on firm value. J Financ Econ 37:39–65

    Article  Google Scholar 

  • Chatterjee S, Wernerfelt B (1991) The link between resources and type of diversification: theory and evidence. Strateg Manag J 12:33–48

    Article  Google Scholar 

  • Chiao C, Ho C (2009) A proposed perspective inspired by entropy on diversification, corporate performance and risk. Int J Organ Innov 2:53–68

    Google Scholar 

  • Choi J-P, Cowing TG (2002) Diversification, concentration and economic performance: Korean business groups. Rev Ind Organ 21:271–282

    Article  Google Scholar 

  • Das M, Sarkar B, Ray S (2013) A decision support framework for performance evaluation of Indian technical institutions. Decis Sci Lett 2:257–274

    Article  Google Scholar 

  • De Mateo F, Coelli T, O’Donnell C (2006) Optimal paths and costs of adjustment in dynamic DEA models: with application to Chilean department stores. Ann Oper Res 145:211–227

    Article  Google Scholar 

  • Denis DJ, Denis DK, Yost K (2002) Global diversification, industrial diversification, and firm value. J Finance 57:1951–1979

    Article  Google Scholar 

  • Dimitrov V, Tice S (2006) Corporate diversification and credit constraints: real effects across the business cycle. Rev Financ Stud 19:1465–1498

    Article  Google Scholar 

  • Doumpos M, Gaganis C, Pasiouras F (2013) Bank Diversification and overall financial strength: international evidence around the crisis. Financial Engineering Laboratory, Technical University of Crete, Working paper No 3

  • Färe R, Grosskopf S, Brännlund R (1996) Intertemporal production frontiers: with dynamic DEA. Kluwer, Boston

    Book  Google Scholar 

  • Golany B, Roll Y (1989) An application procedure for DEA. Omega 17:237–250

    Article  Google Scholar 

  • Hill CW (1985) Diversified growth and competition: the experience of twelve large UK firms. Appl Econ 17:827–847

    Article  Google Scholar 

  • Hitt MA, Hoskisson RE, Kim H (1997) International diversification: effects on innovation and firm performance in product-diversified firms. Acad Manag J 40:767–798

    Article  Google Scholar 

  • Hsiao H-C, Chang H, Cianci AM, Huang L-H (2010) First financial restructuring and operating efficiency: evidence from Taiwanese commercial banks. J Bank Finance 34:1461–1471

    Article  Google Scholar 

  • Jacquemin AP, Berry CH (1979) Entropy measure of diversification and corporate growth. J Ind Econ 359–369

  • Jaenicke EC (2000) Testing for intermediate outputs in dynamic DEA models: accounting for soil capital in rotational crop production and productivity measures. J Prod Anal 14:247–266

    Article  Google Scholar 

  • Kawaguchi H, Tone K, Tsutsui M (2014) Estimation of the efficiency of Japanese hospitals using a dynamic and network data envelopment analysis model. Health Care Manag Sci 17:101–112

    Article  Google Scholar 

  • Kim WC, Hwang P, Burgers WP (1989) Global diversification strategy and corporate profit performance. Strateg Manag J 10:45–57

    Article  Google Scholar 

  • Kweh QL, Lu W-M, Wang W-K (2014) Dynamic efficiency: intellectual capital in the Chinese non-life insurance firms. J Knowl Manag 18:937–951

    Article  Google Scholar 

  • Liebeskind JP (2000) Internal capital markets: benefits, costs, and organizational arrangements. Organ Sci 11:58–76

    Article  Google Scholar 

  • Lin T, Ping EJ, Chiu WKC (2005) International diversification and performance: evidence from Singapore. Asia Pac J Manag 22:65–88

    Article  Google Scholar 

  • Lu JW, Beamish PW (2004) International diversification and firm performance: the S-curve hypothesis. Acad Manag J 47:598–609

    Article  Google Scholar 

  • Palich LE, Cardinal LB, Miller CC (2000) Curvilinearity in the diversification-performance linkage: an examination of over three decades of research. Strateg Manag J 155–174

  • Porter ME (1987) From competitive advantage to corporate strategy, vol 59. Harvard Business Review, Cambridge

    Google Scholar 

  • Qian G, Li L, Li J, Qian Z (2008) Regional diversification and firm performance. J Int Bus Stud 39:197–214

    Article  Google Scholar 

  • Ruigrok W, Wagner H (2003) Internationalization and performance: an organizational learning perspective. Manag Int Rev 63–83

  • Rumelt RP (1982) Diversification strategy and profitability. Strateg Manag J 3:359–369

    Article  Google Scholar 

  • Seiford LM, Zhu J (1999) Profitability and marketability of the top 55 US commercial banks. Manag Sci 45:1270–1288

    Article  Google Scholar 

  • Shafiee M, Sangi M, Ghaderi M (2013) Bank performance evaluation using dynamic DEA: a slacks-based measure approach. J Data Envel Anal Decis Sci 2013:1–12

    Google Scholar 

  • Simar L, Wilson PW (2007) Estimation and inference in two-stage, semi-parametric models of production processes. J Econ 136:31–64. doi:10.1016/j.jeconom.2005.07.009

    Article  Google Scholar 

  • Škrinjarić T (2014) Investment strategy on the Zagreb Stock Exchange based on dynamic DEA. Croat Econ Surv 16:129–160

    Google Scholar 

  • Soleimani-damaneh M (2013) Another approach for estimating RTS in dynamic DEA. J Prod Anal 39:75–81

    Article  Google Scholar 

  • Ting IWK, Lean HH (2015) Does government ownership matter? Comparative study between Glcs and Nglcs in Malaysia. Singap Econ Rev 60:1550019

    Article  Google Scholar 

  • Tone K (2001) A slacks-based measure of efficiency in data envelopment analysis. Eur J Oper Res 130:498–509

    Article  Google Scholar 

  • Tone K, Tsutsui M (2010) Dynamic DEA: a slacks-based measure approach. Omega 38:145–156

    Article  Google Scholar 

  • Tone K, Tsutsui M (2014) Dynamic DEA with network structure: a slacks-based measure approach. Omega 42:124–131

    Article  Google Scholar 

  • von Geymueller P (2009) Static versus dynamic DEA in electricity regulation: the case of US transmission system operators. CEJOR 17:397–413

    Article  Google Scholar 

  • Wan WP, Hoskisson RE (2003) Home country environments, corporate diversification strategies, and firm performance. Acad Manag J 46:27–45

    Article  Google Scholar 

  • Wang W-K, Lu W-M, Kweh QL, Lai H-W (2014) Does corporate social responsibility influence the corporate performance of the US telecommunications industry? Telecommun Policy 38:580–591

    Article  Google Scholar 

  • Wright M, Filatotchev I, Hoskisson RE, Peng MW (2005) Strategy research in emerging economies: challenging the conventional wisdom*. J Manag Stud 42:1–33

    Article  Google Scholar 

  • Wu Y-C, Ting IWK, Lu W-M, Nourani M, Kweh QL (2016) The impact of earnings management on the performance of ASEAN banks. Econ Model 53:156–165

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Accounting, Yuan Ze University, 135 Yuan-Tung Road, Chung-Li, Taiwan

    Wei-Kang Wang & Yan-Heng Lin

  2. Department of Finance and Economics, College of Business Management and Accounting, Universiti Tenaga Nasional, 26700, Muadzam Shah, Pahang, Malaysia

    Irene Wei Kiong Ting

  3. Department of International Trade, Chinese Culture University, 55, Hwa-Kang Road, Yang-Ming-Shan, Taipei, 11114, Taiwan

    Kuo-Cheng Kuo

  4. Department of Accounting, College of Business Management and Accounting, Universiti Tenaga Nasional, 26700, Muadzam Shah, Pahang, Malaysia

    Qian Long Kweh

Authors
  1. Wei-Kang Wang
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Irene Wei Kiong Ting
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Kuo-Cheng Kuo
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Qian Long Kweh
    View author publications

    You can also search for this author in PubMed Google Scholar

  5. Yan-Heng Lin
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Qian Long Kweh.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Wang, WK., Ting, I.W.K., Kuo, KC. et al. Corporate diversification and efficiency: evidence from Taiwanese top 100 manufacturing firms. Oper Res Int J 18, 187–203 (2018). https://doi.org/10.1007/s12351-016-0259-4

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s12351-016-0259-4

Keywords

Mathematical Subject Classification

Search

Navigation