The Effect of Corporate Diversification on the Financial Performance of Listed Manufacturing Firms in Kenya

Abstract

Diversification is developing as one of the most important growth strategies adopted by firms to boost performance. Some firms that have adopted diversification strategies have succeeded while others have failed. The study sought to determine the effect of corporate diversification on the financial performance of listed manufacturing firms in Kenya. To achieve this objective the study used a descriptive survey. The population of the study constituted all the 19 listed manufacturing firms at NSE. A census approach was used and secondary data was used for five years (2010-2014). The data was gathered from financial statements and records. Data analysis was done using a regression model. The study found that corporate diversification was positively related to financial performance of listed manufacturing firms in Kenya. Growth and firm size were found to be negatively related to financial performance of listed manufacturing firms. The correlation results were found to be weak but moderate between corporate diversification and financial performance of listed manufacturing firm. The study recommends that firms should offset the risk of doing business. Through expanding, a firm is not dependent on a limited number of products, locations, or markets in order to survive. A company may pursue this diversification in reaction to a change in the market. The study was conducted within a limited time and scope. The results and the conclusion drawn in this study cannot however; be used to make generalization of all the manufacturing firms operating in Kenya.