Global diversification, profitability and revenue creation: Evidence from an emerging economy

Abstract

The aim of this article is to examine the impact of global diversification on firm performance. Data for this study were gathered from a total of 714 firms over a period of 5 years, from 2016 to 2020, totalling 2904 firm‐year observations. The relationship between global diversification and firm performance is analysed using ordinary least square (OLS) and quantile regression (QR) approaches. Based on OLS regression, global diversification negatively influences both the ability to create revenue and generate profits, with significant evidence only for revenue. On the other hand, QR analysis presents various perspectives of the relationship. Although global diversification is still negatively associated with the profitability of under‐performing firms, the relationship can be positive once the firms begin to perform well. In terms of revenue creation, its association with global diversification is found to be significantly negative for all levels of revenue. This demonstrates how global diversification can provide a distinctive platform for firms to generate profits even though their ability to make revenue decreases as their performance improves. Policy implications are discussed accordingly.