Geographic diversification, performance, and the risk profile of UK construction firms

Purpose – Executives are often faced with the challenge of making sound decisions regarding the product and geographic markets into which the company should diversify. This situation is even more glaring with respect to construction companies, owing to the volatile nature of the construction market. The purpose of this paper is to present empirical results on the impact of geographic diversification on the performance and risk profiles of construction firms in the UK.Design/methodology/approach – Published financial data of construction firms covering the period 1995‐2004 are employed in the paper. From this data, extent of geographic diversification, performance, and risk are computed. Firms are grouped based on the extent of diversification into undiversified, moderately diversified, and highly diversified. Performance of these groups is then compared using the t‐statistic based on return on equity (ROE), return on total asset (ROTA), return on capital employed (ROCE), and profit margin (PM).Findings – ...

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