Abstract
purpose of this study was an empirical analysis of the relationship between international diversification and firm performance of South African mining companies. The empirical analysis was done using panel regression. The study sample consisted of twenty (20) companies with publicly available financial information for the period 2009 to 2019. Firm performance was measured using the accounting variables of return on equity (ROE), return on assets (ROA) and return on sales (ROS). International diversification was measured by foreign sales to total sales (FSTS) and foreign assets to total assets (FATA). The control variables were firm size (FS) and tangibility (TNG).
The results of the empirical analysis showed the impact of international diversification on firm performance depends on the international diversification measure. FSTS had a positive and significant impact on ROE, ROA, and ROS. However, FATA had a negative and insignificant impact on ROE, ROA, and ROS. Firm size showed an insignificant impact on ROE while it had a significant and positive impact on ROA and ROS.
The findings of the study were that foreign sales play a pivotal role in the mining industry. On average, mining firms receive more than 50% of their revenue from foreign clients. Mining companies are advised to maintain good relations with customers in foreign markets to retain existing relations and to also acquire new relations that will ultimately boost foreign sales. As the mining industry supports the South African economy, the government and regulators should ensure they build a conducive environment for the mining companies to thrive while continuing to build shareholder value to boost the South African economy. The negative impact that foreign assets have on financial performance, suggests mining firms should ensure they consider other non-financial information when deciding to invest in foreign assets.
Key Words
Globalisation, global orientations, international diversification, firm performance, firm specific advantage, home country institutions, mining firms, mining companies, South Africa.