Profit/ Variance Trade off and International Diversification

Abstract

This research examines the joint risk-return performance of globally diversified firms. Diversification here encompasses both the product and the international market dimensions. Industry effects were removed to avoid the possible spurious conclusions that may arise due to the important influence of industry membership on firm profit performance. Based on a sample of 125 multinationals, this paper investigates differences in the strategic diversification postures of groups of firms with distinct risk-return performance profiles.