| This study investigated diversification activities of media firms and their impacts on financial performance. It adopted a pooled cross-sectional and time-series methodology. Data came from the top 26 media firms over a 12-year time period (1991 to 2002). Although most media studies dealt with the issue from a perspective of social theory that media ownership consolidation might have potential harm in content diversity, this study adopted a different perspective. Concentration of ownership was interpreted as diversification activities of media firms. In particular, this study investigated diversification activities from the aspects of the extent (more or less), the direction (related or unrelated), and mode (mergers and acquisitions) of diversification. The three aspects of diversification activities were then examined in terms of diversification in the product market and in the international market. Performance was defined as financial performance measured by accounting-based revenues; return on sales (ROS); return on assets (ROA); earnings before interest, tax, depreciation and amortization (EBITDA); and earnings per share (EPS).;Our findings show that media firms achieved better financial performance in terms of cash flow reflected by total sales revenues and EBITDA. Other three measures dealing with managerial efficiency (ROS and ROA) and investor's evaluation (EPS) did not show a significant relationship with the total degree of product diversification. Unlike product diversification, international diversification showed a negative significant relationship with all five performance measures.;Regarding direction (related degree) of diversification, market investors' evaluation yielded an inverted-U-shaped model, whereas cash flow measures yielded a U-shaped model. Thus, based on the level of operating cash flow, firms achieved better performance by diversifying their businesses. However, according to market reaction, too much diversification resulted in negative performance growth.;In terms of mode of product diversification, cross-media diversification was the most preferred type, while vertical diversification was the least preferred type. With regard to the preferred region, firms mostly set up subsidiaries in developed regions such as Western Europe and North America, while the firms hardly diversified businesses into Arab and African markets. |
