International diversification, product diversification, firm return and risk

Past studies focus more on exploring the effect of diversification and firm performance in the absence of risk consideration. This study chooses 698 Taiwanese listed firms to examine the relationship between a firm¡s international diversification and product diversification strategies and its financial return-risk performance separately and jointly. Our results support the S-shaped relationship between international diversification and firm return and the inverted S-shaped relationship between international diversification and risk. Moreover, contradictory to prior results, our results show a negatively relationship between a related product diversification and firm return and no significant relationship between unrelated product diversification and firm return. However, as expected, our results show a positively relationship between related product diversification and firm risk, and negatively relationship between unrelated product diversification and firm risk. Further, we find that large-sized, low level of firm leverage, high level of unrelated product diversification, and more subsidiaries in China yield high return and low risk performance on average. Finally, this paper offers suggestions to Taiwan-listed firms, government regulators, and investors.