The Relationship Between The Effectiveness Of Risk Diversification and Corporate Performance

Abstract

This research examines the relationship between corporate risk diversification and financial performance. Prior research is extended by the use of a risk-adjusted performance measure typically used in the finance literature and a market-based measure of risk diversification. The analysis also uses a larger sample size than prior work, and controls for both firm size and ownership differences. The results support the hypothesis of a significant relationship between corporate risk diversification and performance. These findings are relevant for managers evaluating diversification strategies, for shareholders selecting appropriate firms for investment, and for researchers seeking to explain performance differences.