Diversification and Desynchronicity: An Organizational Portfolio Perspective on Corporate Risk Reduction

Detalhes bibliográficos
Autor(a) principal: Shao, Xue-Feng
Data de Publicação: 2020
Outros Autores: Gouliamos, Kostas, Luo, Ben Nan-Feng, Hamori, Shigeyuki, Satchell, Stephen, Yue, Xiao-Guang, Qiu, Jane
Tipo de documento: Artigo
Idioma: eng
Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
Texto Completo: http://hdl.handle.net/10400.22/19264
Resumo: A longstanding objective of managers is to reduce risk to their businesses. The conventional strategy for risk reduction is diversification; however, evidence for the effectiveness of diversification remains inconclusive. According to Organizational Portfolio Analysis, firms are viewed as portfolios of business units, and the key to risk reduction is both diversification and synchronization compensation. This study introduces “desynchronicity”, a process that operationalizes synchronization compensation by assessing the degree of correlation between income streams of business units. Two samples of 737 and 332 firms (from COMPUSTAT) were used to empirically test the relationships between diversification and risk, and desynchronicity and risk. The results show that diversification alone will not always lead to a lower corporate risk. To reduce risk, firms also need to consider the desynchronicity of their business portfolios. Other practical implications include improved decisions on portfolio composition.
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spelling Diversification and Desynchronicity: An Organizational Portfolio Perspective on Corporate Risk ReductionRisk reduction determinantsProduct diversificationSynchronization compensationImproved portfolio decisionsA longstanding objective of managers is to reduce risk to their businesses. The conventional strategy for risk reduction is diversification; however, evidence for the effectiveness of diversification remains inconclusive. According to Organizational Portfolio Analysis, firms are viewed as portfolios of business units, and the key to risk reduction is both diversification and synchronization compensation. This study introduces “desynchronicity”, a process that operationalizes synchronization compensation by assessing the degree of correlation between income streams of business units. Two samples of 737 and 332 firms (from COMPUSTAT) were used to empirically test the relationships between diversification and risk, and desynchronicity and risk. The results show that diversification alone will not always lead to a lower corporate risk. To reduce risk, firms also need to consider the desynchronicity of their business portfolios. Other practical implications include improved decisions on portfolio composition.This work was supported by JSPS KAKENHI Grant Number 17H00983.MDPIRepositório Científico do Instituto Politécnico do PortoShao, Xue-FengGouliamos, KostasLuo, Ben Nan-FengHamori, ShigeyukiSatchell, StephenYue, Xiao-GuangQiu, Jane2022-01-03T15:04:13Z20202020-01-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/10400.22/19264eng10.3390/risks8020051info:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2023-03-13T13:13:16Zoai:recipp.ipp.pt:10400.22/19264Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T17:39:18.494568Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse
dc.title.none.fl_str_mv Diversification and Desynchronicity: An Organizational Portfolio Perspective on Corporate Risk Reduction
title Diversification and Desynchronicity: An Organizational Portfolio Perspective on Corporate Risk Reduction
spellingShingle Diversification and Desynchronicity: An Organizational Portfolio Perspective on Corporate Risk Reduction
Shao, Xue-Feng
Risk reduction determinants
Product diversification
Synchronization compensation
Improved portfolio decisions
title_short Diversification and Desynchronicity: An Organizational Portfolio Perspective on Corporate Risk Reduction
title_full Diversification and Desynchronicity: An Organizational Portfolio Perspective on Corporate Risk Reduction
title_fullStr Diversification and Desynchronicity: An Organizational Portfolio Perspective on Corporate Risk Reduction
title_full_unstemmed Diversification and Desynchronicity: An Organizational Portfolio Perspective on Corporate Risk Reduction
title_sort Diversification and Desynchronicity: An Organizational Portfolio Perspective on Corporate Risk Reduction
author Shao, Xue-Feng
author_facet Shao, Xue-Feng
Gouliamos, Kostas
Luo, Ben Nan-Feng
Hamori, Shigeyuki
Satchell, Stephen
Yue, Xiao-Guang
Qiu, Jane
author_role author
author2 Gouliamos, Kostas
Luo, Ben Nan-Feng
Hamori, Shigeyuki
Satchell, Stephen
Yue, Xiao-Guang
Qiu, Jane
author2_role author
author
author
author
author
author
dc.contributor.none.fl_str_mv Repositório Científico do Instituto Politécnico do Porto
dc.contributor.author.fl_str_mv Shao, Xue-Feng
Gouliamos, Kostas
Luo, Ben Nan-Feng
Hamori, Shigeyuki
Satchell, Stephen
Yue, Xiao-Guang
Qiu, Jane
dc.subject.por.fl_str_mv Risk reduction determinants
Product diversification
Synchronization compensation
Improved portfolio decisions
topic Risk reduction determinants
Product diversification
Synchronization compensation
Improved portfolio decisions
description A longstanding objective of managers is to reduce risk to their businesses. The conventional strategy for risk reduction is diversification; however, evidence for the effectiveness of diversification remains inconclusive. According to Organizational Portfolio Analysis, firms are viewed as portfolios of business units, and the key to risk reduction is both diversification and synchronization compensation. This study introduces “desynchronicity”, a process that operationalizes synchronization compensation by assessing the degree of correlation between income streams of business units. Two samples of 737 and 332 firms (from COMPUSTAT) were used to empirically test the relationships between diversification and risk, and desynchronicity and risk. The results show that diversification alone will not always lead to a lower corporate risk. To reduce risk, firms also need to consider the desynchronicity of their business portfolios. Other practical implications include improved decisions on portfolio composition.
publishDate 2020
dc.date.none.fl_str_mv 2020
2020-01-01T00:00:00Z
2022-01-03T15:04:13Z
dc.type.status.fl_str_mv info:eu-repo/semantics/publishedVersion
dc.type.driver.fl_str_mv info:eu-repo/semantics/article
format article
status_str publishedVersion
dc.identifier.uri.fl_str_mv http://hdl.handle.net/10400.22/19264
url http://hdl.handle.net/10400.22/19264
dc.language.iso.fl_str_mv eng
language eng
dc.relation.none.fl_str_mv 10.3390/risks8020051
dc.rights.driver.fl_str_mv info:eu-repo/semantics/openAccess
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dc.publisher.none.fl_str_mv MDPI
publisher.none.fl_str_mv MDPI
dc.source.none.fl_str_mv reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
instacron:RCAAP
instname_str Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
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reponame_str Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
collection Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
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