Firm performance and diversification in the energy sector

Wim Westerman*, Adri De Ridder, Marijn Achtereekte

*Corresponding author for this work

    Research output: Contribution to journalArticleAcademicpeer-review

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    Abstract

    Purpose The study aims to fill a gap in the literature on the economic impact of industrial and international diversification on firm performance in the energy sector.Liet al.(2016)investigate firms listed in China, and this study analyzes firms listed in (Western) Europe. Design/methodology/approach A sample of 129 energy firms is extracted from Datastream and covers the period from January 2009 to December 2015. Univariate and multivariate regression analyses are used to determine a plausible relation of diversification on corporate performance. Also, the difference between renewable energy firms and conventional energy firms is explored. Findings A univariate analysis using both return on assets andTobin's Qas a variable shows that renewable energy firms have a higher profitability than conventional energy firms. However, a multivariate analysis does not confirm this result. The authors also document a negative relation between diversification strategies and firm performance. Research limitations/implications The study uses main industry codes. Yet, one might make a distinction between renewable energy and conventional energy amounts with corporations. Also, the authors cover financial crisis years. Researchers might take into account more recent years. Practical implications The findings of the study highlight the importance of short-term and long-term considerations for practitioners related to demand, the energy mix, oil prices and firm strategies. Originality/value The authors contribute to the debate and the literature when identifying similarities and differences between conventional energy firms and renewable energy firms in their application of diversification strategies and their (relation to) firm performance.

    Original languageEnglish
    Pages (from-to)1373-1390
    Number of pages18
    JournalManagerial Finance
    Volume46
    Issue number11
    DOIs
    Publication statusPublished - 29-Oct-2020

    Keywords

    • Firm performance
    • Diversification
    • Energy sector
    • Europe
    • CORPORATE DIVERSIFICATION
    • TRADE
    • RISK

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