An institutional approach on the effects of diversification type

Purpose In this study, the authors argue that there is more than meets the eye on the effects over postacquisition performance and diversification. This study aims to propose that the conditions that allow higher returns are dependent on the institutional context. The authors suggest that diversification strategies differ in their impact on postacquisition performance when moderated by the institutional inefficiencies of economies. Design/methodology/approach This research is based on a quantitative approach. The authors statistically test the hypotheses based on multiple regression analysis. Findings Results show a negative moderating effect of the institutional inefficiencies of the target country on the relationship between the diversification decisions of the firm and its postacquisition performance. So that Latin American firms that perform Cross-border acquisitions with higher degrees of diversification are related to worse performance. However, the degree of institutional inefficiencies negatively moderates this relation, attenuating the negative effects of diversification over performance. Originality/value Although past research has shown that economies with high institutional inefficiencies can benefit from higher levels of diversification, no study has considered the impact of the institutional inefficiencies when discussing many economies, to authors’ acknowledgment. The authors provide evidence that, in the case of Latin American firms, diversification reduces performance; however, the degree of institutional inefficiencies negatively moderates this relation.