The effect of the level of diversification on corporate liquidity for firms listed at the Nairobi securities exchange

Abstract

This study sought to establish the effect of the level of diversification of unrelated businesses on corporate liquidity for firms listed at the Nairobi Securities Exchange. To achieve the objective of this study, a descriptive research design study was used to establish the effect of the level of diversification on corporate liquidity for firms listed at the Nairobi Securities Exchange. The target population of this study was listed firms that have diversified into other businesses and investment. Stratified sampling was used to select a sample which consisted of 30 companies listed in the Nairobi Securities Exchange that has diversified. This sample was arrived at after taking into consideration the availability of the listed companies’ financial statements and the similarities that is associated with each sector they fall into. Diversification of unrelated businesses was measured as the total assets a company has on another company (in case of minority or majority holding), the amount of investment held in other institutions securities market, money market, bond market. The study reviewed secondary data for a period of five years (2008-2013). A multiple regression model was used to analyze the data. From the results of the regression, it was revealed that there was an indirect relationship between corporate liquidity and diversification index with the level of interest while the relationship between corporate liquidity and government deficit showed an inverse relationship. The study recommends that all firms listed at Nairobi Securities Exchange to diversify their portfolios through buying securities in the same asset class that are not affected by the same variables. Furthermore, there are metrics that policymakers can use to measure these key economic dimensions and ways that they can promote their nation’s long-term economic health and stability. The limitations of this study were that the researcher had to conduct this study within a limited time frame and resources which constrained the scope and depth of the study A comparative study can be carried out to establish whether the level of diversification in other countries is able to impact on corporate liquidity of listed firms focusing more on commercial and services, financials and investments, agriculture, financials and investments