Diversification, family involvement and firm performance

Abstract

Purpose – The purpose of this paper is to investigate the effect of product and geographic diversification on the performance of Italian manufacturing firms and evaluate the moderating role of family involvement. Design/methodology/approach – The hypotheses have been tested by using a fixed-effects panel data regression model. Findings – Results show a linear relationship between product diversification and firm performance and an inverted U-shaped relationship between geographic diversification and firm performance. Moreover, when considering the status of the family firm, family ties have a negative moderating role on the performance of companies that are product and internationally diversified. Originality/value – By providing theoretical explanations and empirical evidence, the study extends the diversification-performance research by testing this relationship in an unexplored context (i.e. Italy), and by identifying a still not well explored contingency factor (i.e. family involvement). In doing so, diversification and family involvement literatures are brought together and the results show the importance of the type of owner regarding the impact of product and international diversification on firm performance.

Assessing the Role of Strategic Choice on Organizational Performance by Jacquemin–Berry Entropy Index

“…Scholars have extensively focused on the relationship between product diversification, international diversification and organizational performance considered separately [6,38,39]. However, more studies begin to analyse the effects of both approaches, also [7,[40][41][42].…”

“…Level of international diversification is given by the number of different abroad markets in which it operates [7]. For SMEs, the benefits of international diversification include achieving economies of scale, using location-specific advantages [56], better use of their capabilities [57], accessing markets that are not easily accessible in their originating country [58] or gaining competitive advantages [55].…”

“…The role of strategic choice in terms of diversification [1] on organizational performance has been extensively researched in the literature [2][3][4][5]. However, despite being the subject of many empirical studies, it requires additional empirical tests [6] due to the diversity of results [7] and lack of consensus [6][7][8].…”

“…Various scholars argue that family involvement may significantly influence strategic decisions of entrepreneurs [3,7,[20][21][22][23] toward product diversification [24,25]. Still, there is little knowledge on whether the organizational performance due to diversification varies specifically due to family involvement in SMEs [26,27].…”

“…The interest in family involvement is justified by the increasing number and importance of family-owned SMEs in terms of GDP contribution or job creation [28], since such entities are common in the European Union (EU) [29][30][31]. Specificity of family-owned SMEs such as family members' active involvement in management [7], potential problems due to the conflicts of interest between family members [32,33] provides an interesting setting to explore the relationship between strategic choice and organizational performance [34].…”