Does corporate diversification strategy affect stock price crash risk?

Corporate diversification and crash risk: Evidence in East Asian firms

“…Finally, this study confirms Q. Wang et al (2023) and Lee et al (2019), who also found a negative association between diversification and crash risk in the U.S. and Malaysia. However, our finding contradicts Qi and Diao (2020), who found a higher crash risk among diversified firms in China.…”

“…First, the study extends Claessens et al (1998), Claessens et al (1999), and Lins and Servaes (2002) by investigating the influence of diversification on crash risk in addition to its impact on firm performance in East Asian countries. Second, it corroborates the evidence regarding the relationship between diversification and crash risk, which contradicts prior studies focusing on Malaysia (Lee et al, 2019), China (Qi & Diao, 2020), and the U.S. (Wang et al, 2023). Third, it utilizes a more extensive data set of six East Asian countries to examine the relationship between diversification and crash risk.…”

“…Meanwhile, the crash risk literature offers an alternative performance measure that reflects agency problems (Jin & Myers, 2006). However, only a few studies have examined the relationship between diversification and crash risk, which also have provided mixed conclusions (Lee et al, 2019;Qi & Diao, 2020;Wang et al, 2023). Environmental heterogeneity across the country exacerbates bad newshoarding behavior, such as less developed financial and poor corporate governance systems, and positively affects crash risk (Jin & Myers, 2006).…”

“…Third, it utilizes a more extensive data set of six East Asian countries to examine the relationship between diversification and crash risk. And finally, in addition to prior studies (Lee et al, 2019;Qi & Diao, 2020;Wang et al, 2023), it explores an alternative hypothesis and mechanisms explaining a relationship that is more suitable for the context of East Asian countries.…”

We act therefore we are: A theory of action‐driven strategy

“…Researchers found that forays into related industries may be based on the exploitation of the firm's existing resources (Chang, 1996; Chatterjee & Wernerfelt, 1991; Mackey et al, 2017; Weiss, 2016) and their transferability (Furr & Eisenhardt, 2021), driven by value creation resulting from synergies derived from economies of scale and scope (Hoskisson et al, 2005; Iyer & Miller, 2008) or cost leverage (Levinthal & Wu, 2010; Lüthge, 2020). Some scholars approached the strategy with a focus on risk management and optimization behaviors; studies found that firms sought diversification strategies to reduce risk (Lubatkin & Chatterjee, 1994), maximize shareholder value (Gomes & Livdan, 2004), or pursue investment efficiency (Wang et al, 2023). Findings also revealed that the level of industry concentration, by adding pressure to competitors' conditions, may determine related or unrelated diversification strategies (Christensen & Montgomery, 1981; Ljubownikow & Ang, 2020).…”