The relationship between geographical diversification (GDI) and profitability (ROA) has yielded mixed findings across various developed countries. This study re-examined the relationship using data of public firms listed on the main market of Bursa Malaysia for the period of 2010-2014 using quantile regression approach. The firms are categorised into small firms and large firms based on the firm size median value. The empirical results show that GDI affects ROA heterogeneously in various quantile levels of the ROA for all firms, small firms and large firms. GDI significantly (positive relationship) influences ROA in the middle quantile region (from quantile 0.25 to 0.75) for all firms, in the low quantile region (from quantile 0.1 to 0.5) for the sample of small firms and in the high quantile region (from quantile 0.5 to 0.9) for the sample of large firms. Therefore, GDI activities could benefit firms, provided that the activities are conducted wisely by taking into account the profitability levels of firms as well as the size of firms. This study contributes to literature on geographical diversification by providing empirical support in the context of an emerging market.
Keywords: Business; Firm size; Geographical diversification; Profitability; Quantile regression.
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