Essay On Corporate Diversification

Corporate Diversification
Corporate diversification in term of the product consists of related and unrelated diversification; whereas, in terms of market, this study employed international diversification. The related and unrelated diversification have been measured by using the entropy measure Entropy measure relies on an established product classification, such as international standard industry classification of all economic activities (ISIC). Indonesia employs ISIC Rev 4 to develop its standard which called Klasifikasi Baku Lapangan Usaha Indonesia (KBLI) (BPS, 2009). Therefore, related diversification is defined as the corporate strategy to operate in a related business in the same industry group, which is reflected in the same two-digit ISIC code, although they have a different industry segment under four-digit ISIC codes. Unrelated diversification is the corporate strategy, which operates the business in a different business or industry group based on two-digit ISIC codes.
The formulas for related diversification and unrelated are as follows:

Equation 1 Related Diversification in several segments
〖DR〗_j=∑_iεj▒P_i^j ln 1/(P_i^j ) (1)
Equation 2 Total Related Diversification
DR=∑_(j=1)^m▒〖DR〗_(j ) x〖 p〗_(j ) (2)
Equation 3 Total Unrelated Diversification
DU=∑_(j=1)^m▒〖P^j ln 1/p_i 〗 (3)

Where:
〖DR〗_j= The

Multiple regression was used because, according to Hair, Black, Babin, and Anderson (2010), it is a statistical technique that can be applied to investigate the relationship between a dependent variable and independent variables. Moreover, to accommodate the effect of independent variables on CSP that do not occur immediately or in the same period, multiple regression analysis with one-year lagged dependent variables was employed in this study Walls, Berrone, and Phan