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This study casts light on the impact of the decision to diversify globally on the firm’s operating performance. Examining operating performance enables us to circumvent the measurement errors associated with excess value that is used to measure the diversification discount/premium. Our central empirical results for a sample of firms that chose to diversify globally reveal that sample firms, in spite of exhibiting a diversification discount, significantly outperform their domestic counterparts following the diversification. Our findings imply that global diversification does not result in misallocation of investment resources. The fact that our firms exhibit the diversification discount and yet outperform their domestic counterparts confirms previous studies’ conclusions that the diversification discount is most likely an artifact of measurement error
Iskandar‐Datta et al. (2007) studied this question.