Firm performance and diversification in the energy sector

• Published in: Managerial finance 2020-11, Vol.46 (11), p.1373-1390
• Main Authors: Westerman, Wim, De Ridder, Adri, Achtereekte, Marijn
• Format: Article
• Language: English
• Subjects: Competition; Competitive advantage; Consumer Price Index; Corporate governance; Diversification; Energy consumption; Energy industry; Energy sector; Europe; Firm performance; Fossil fuels; Hypotheses; International; International business; Market positioning; Multinational corporations; Renewable resources; Return on assets; Subsidies
• ISSN: 0307-4358; 1758-7743; 1758-7743
• DOI: 10.1108/MF-11-2019-0589

PurposeThe 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. Li et al. (2016) investigate firms listed in China, and this study analyzes firms listed in (Western) Europe.Design/methodology/approachA 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.FindingsA univariate analysis using both return on assets and Tobin's Q as 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/implicationsThe 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 implicationsThe 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/valueThe 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.