Measurement of diversification has always remained one of the critical issues in diversification literature. During the past half-century, many measures of corporate diversification have been suggested and applied. Traditionally, diversification as a continuous variable has been measured through 'entropy' and 'Herfindahl index'. While both measures are able to capture related and/or unrelated diversification, they fail to capture degree of relatedness of group firms. To address this, a new measure of diversification is proposed, which is based on correlation of firms' sales. It will not only capture degree of relatedness of group firms but also decompose the components into additive structure and would vary between zero and one. We have found a quadratic relationship between a firm's profitability and its degree of diversification. Further, it was observed that diversified firms are performing better irrespective of their degree of diversification if performance is measured in terms of accounting variables (return on asset and return on equity); however, market-based variable (Jensen's alpha) is higher in case of very low and very high degree of diversification.

This article investigates the impact of women directors on financial outcomes—return and risk of Indian companies. It applies fixed and random effects Tobit regressions to examine the effect of female directors on financial outcomes (returns and risk) of the firm, controlling promoters’ shareholding, leverage, firm growth and age, board size and board meetings. The study does not find any support to agency and resource dependence theories because the proportion of women directors in most Indian boards is too small to make much impact. However, it has a moderating influence to reduce variations in accounting profits and stock returns. The investors reward also meeting the regulatory quota of woman member on the boards by higher market returns indicating a signalling effect. The study adds an understanding of quota induced women directors’ influence on the firm’s financial outcomes. However, the regulators should be cautious in mandating induction of women members on the boards as they might be inexperienced or lack the needed grounding to effectively influence board processes.

Though we have had extensive theoretical and empirical studies on diversification during the past decades, yet the impact of diversification on a firm’s financial performance remains unclear. Earlier, authors (like Arnould, 1969 ; Berry, 1971 ; Gort, 1962 ) tried to answer the fundamental question of ‘whether a firm should diversify or not’, but were unable to reach any consensus. Rumelt (1974) categorized diversification into related and unrelated and concluded that diversification in a related area is better than being undiversified. Even after the seminal work of Rumelt, empirical evidence on the impact of both types of diversification on a firm’s financial performance is still mixed ( Berger & Ofek, 1995 ; Chen & Joseph Yu, 2012 ; Duin & Hansen, 1991 ; Palepu, 1985 ; Palich, Cardinal, & Miller, 2000 ). In this study, we make an attempt to answer the same fundamental question of ‘whether a firm should diversify or not’ by including three new aspects: first, we measure the impact of diversification (and its types) on the three aspects of a firm’s financial performance, that is, risk, return and risk-adjusted return; second, we measure this impact on lag 1 1 As diversification is the strategic decision of a firm hence its impact should come over a period of time. of diversification; and third, we use a newly developed approach, that is, correlation-based diversification measures ( Nigam & Gupta, 2018b ) to measure different types of diversification. Initially, our results indicated insignificant impact of diversification (and its types) on all firm performance measures. Later, we segregated related diversification (RD) into positive related diversification (PRD) and negative related diversification (NRD); then we measured the impact of each type of diversification separately and found that diversification is better than being undiversified only if it is into a negative related area. It is a new finding and may have some policy implications for the management while designing its diversification strategy.

Integration or segmentation of markets determines whether substantial advantages in risk reduction can be attained through portfolio diversification in foreign securities. In an integrated market, investors face risk from country-specific factors and factors, which are common to all countries, but price only the later, as country-specific risk is diversifiable. The aim of this study is two-fold, firstly, investigating the superiority of the Fama-French three-factor model over Capital Asset Pricing Model (CAPM) and later using the superior model to test for integration of Indian and US equity markets (a proxy for global markets). Based on a sample of Bombay Stock Exchange 500 non-financial companies for the period 2003–2019, the data suggest the superiority of Fama-French three-factor model over CAPM. Using the Non-Linear Seemingly Unrelated Regression technique, the first half of the sample period (2003–2010) shows evidence of market segmentation; however, the second sub-period (2011–2019) shows weak signs of market integration, which is supported by the Johansen test of cointegration, suggesting that Indian market is gradually getting integrated with global markets.

Purpose The purpose of this paper is to understand the patterns of the implied volatility (IV) of the Indian index option market and its relationship with moneyness (called the volatility smile). Its goal is also to ascertain the determinants of IV. Design/methodology/approach For this purpose, IVs were computed from the daily call and put data of CNX Nifty index options from April 2004 to March 2014. The patterns of IVs were analysed using univariate parametric tests. Multivariate regression analyses were conducted to understand the relationships observed. Resultantly, vector autoregressions were performed to assess the determinants of IV. Findings The results suggested that there was asymmetric volatility across time and strike prices using alternative measures of moneyness. Furthermore, it was found that the IV of lower strike prices was significantly higher (lower) than that of higher strike prices for call (put) options. Put IV was observed to be higher than call IV irrespective of any attributes. The results further showed that current-month contracts have significantly higher IV than those for next month and those were followed by far-month contracts. Nifty futures’ volumes and momentum were found to be significant determinants of IV. Practical implications The behaviour of the volatility smile is important when accounting for the Vega risks in the portfolios of hedge fund managers. While taking a position, besides the Black-Scholes-Merton (BSM) model’s input factors, investors must consider the previous behaviour of volatility, a market’s microstructures and its liquidity for a put option contract. They must also consider the attributes of the underlying for a call option contract. Originality/value This is the first decadal study (the longest span of data for any international study on this subject) to confirm the existence of the volatility smile for the index options market in India. It examines and confirms the smile’s asymmetry patterns for different definitions of moneyness, as well as option types, the tenure of options contracts and the different phases of market conditions. It further helps to identify the determinants of IV and so has renewed importance for traders.