Firm size and diversification strategies: Does labor intensity matter?

Abstract

This paper examines the impact of firm size on business and international diversification strategies. Using a novel dataset, we study 294 Indonesian publicly traded firms in a cross-section research. Controlling for past performance, firm age and industry dummies, we do find, as we expect, that large firms tend to diversify their business as well as their geographic segments. We also extend this study by looking at the moderating role of labor intensity in the impact of firm size on diversification strategies. Our results show that large firms could broaden their geographic area of sales more easily when they do not face labor constraint. Less labor intensive firms could be more flexible to bring their business into a wider coverage.