Product Diversification and Enhancement of Asset Returns in Petrochemical Companies Using a Kernel Density Approach.

Ilka, Maria; Darabi, Roya; Najafi Mughadam, Ali; Fallah Shamsh, Mir Feiz

doi:10.22050/pbr.2025.551207.1414

Product Diversification and Enhancement of Asset Returns in Petrochemical Companies Using a Kernel Density Approach.

Document Type : Original Article

Authors

Maria Ilka ¹

Roya Darabi ²

Ali Najafi Mughadam ³

Mir Feiz Fallah Shamsh ⁴

¹ Ph.D. Candidate, Department of Accounting, Ki.C., Islamic Azad University, Kish Island, Iran

² Professor, Department of Accounting, ST.C., Islamic Azad University, Tehran, Iran

³ Assistant Professor, Department of Accounting, ST.C., Islamic Azad University, Tehran, Iran

⁴ Associate Professor, Department of Management, CT.C., Islamic Azad University, Tehran, Iran

https://doi.org/10.22050/pbr.2025.551207.1414

Abstract

Purpose: This study examines the impact of product diversification on asset returns in petrochemical companies using a kernel density approach, addressing contradictory findings in the diversification-performance literature within this capital-intensive sector.
Design/methodology/approach: Employing an ex-post facto research design, we analyzed data from petrochemical companies listed on the Tehran Stock Exchange from 2011 to 2021. The study utilized a two-stage analytical approach: first classifying companies into life cycle stages (growth, maturity, decline) using discriminant analysis, then testing hypotheses through multivariate regression and cross-sectional analysis. The kernel density estimation provided a non-parametric assessment of diversification effects.
Results: The results demonstrate that product diversification significantly enhances asset returns in petrochemical firms, with the Herfindahl index revealing seven distinct market concentration levels. The positive effect of diversification was particularly pronounced in monopolistic market structures. Empirical evidence confirms that diversification serves as an effective strategy for improving financial performance and mitigating market dependence.
Originality/value: This research contributes to the literature by introducing kernel density estimation to diversification analysis, providing a more nuanced understanding of return distributions beyond traditional parametric methods. The study also offers unique insights into the petrochemical sector's dynamics in emerging economies, highlighting how market structure moderates the diversification-performance relationship.
Practical implications: The findings suggest that managers should prioritize diversification strategies, especially in monopolistic environments, to enhance asset utilization and financial resilience. Policymakers can use these insights to design industrial policies that encourage strategic diversification in response to Iran's economic conditions.

Highlights

· The study examines the relationship between product diversification and return on assets (ROA) in petrochemical companies listed on the Tehran Stock Exchange during the period 2011–2021.

· A kernel density approach is applied to analyze the variation and distribution of ROA. Markets are classified into seven levels, ranging from complete monopoly to perfect competition, based on the concentration index and the Herfindahl index.

· The Shepherd’s market classification framework is employed to interpret stock market structures.

· The findings indicate that product diversification has a positive and statistically significant effect on ROA, with stronger impacts observed in monopolistic market structures.

Keywords

Product Diversification

Asset Returns

Kernel Density Approach

Petrochemical Industry

Subjects

Oil and Gas Economics and Management

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