Abstract
This study explores the diversification strategy adjustment mechanisms of firms that experience substantial changes in their activity for 30 Tunisian companies listed on the Tunis Stock Exchange for 15 years over the period 1997-2011. Adjustments appear to be asymmetric among firms with large increases and those with large decreases in diversification ratios. The different adjustments are due to differences in diversification targets. Speeds of adjustment are found to be affected by firm characteristics. In addition, we show that the Tunisian firms adjust their diversification ratios to a target ratio. Indeed, taking into account the fundamental variables that might explain the strategic orientation of a firm, namely the size, age, free cash flow, and profitability, we have shown that the speed of adjustment is on average between 4 and 5 years. The hypothesis of a partial adjustment is thus verified that it is possible to set target levels diversification. (C) 2020 The Authors. Published by IASE.