TITLE:
Nonlinear Effect between Diversification and Corporate Performance from the Perspective of TMT Faultlines: A Panel Smooth Transition Model
AUTHORS:
Jiebin Zhou
KEYWORDS:
Task-Related Faultlines, Bio-Demographic Faultlines, Diversification, Corporate Performance, Panel Smooth Transition Model
JOURNAL NAME:
American Journal of Industrial and Business Management,
Vol.8 No.1,
January
29,
2018
ABSTRACT: The results of existing researches
of the relationship of diversification-performance are unstable and
contradictory. Hence, according to the theory of TMT faultlines, this empirical
study utilizes a panel smooth transition (PSTR) model to
investigate whether the relationship of diversification-performance will have a
nonlinear transition due to TMT faultlines. Evidence from a sample of 95 publicly traded companies
in China from 2006-2015 shows a nonlinear effect under the
influence of task-related faultlines and bio-demographic
faultlines. Specifically, when
transition variable is task-related faultlines, the threshold divides the PSTR model into two regimes
with the values of 0.2262. The effect on the relationship transforms from
insignificant negative correlation to positive correlation as the model
transforms from low regime to high regime. When it comes to bio-demographic
faultlines, the threshold divides it into three regimes
with the values of 0.1602 and 0.7146. The effect becomes negative in the
crowding-out regimes but turns to a positive correlation in the middle regime. Therefore, the main contribution of this study is that it not only offers
a new way of thinking for answering the arguments of the relationship, but also
provides a basis for decision making when choosing the senior management team
for the implementation of diversification strategy.