MCOM Theses and Dissertations (2020)

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Factors influencing the adoption of voluntary audits for Small and Medium Enterprises in Nairobi County, Kenya
(Strathmore University, 2020) Wangechi, Mary
Small and medium enterprises play a major role in economic development and in the provision of employment and poverty alleviation. Auditing has many benefits to small and medium enterprises, which include bringing about financial discipline and preventing money laundering, fraud and other illegal activities. However, SMEs in Kenya show a low adoption and utilization. This study therefore sought to investigate on the factors influencing the adoption of voluntary audits for SMEs in Kenya. The study also sought to determine the influence of firm characteristics, credit access requirements, compliance with tax regulations and ownership-control characteristics on the adoption of voluntary audits for SMEs in Kenya. This research study used a descriptive research design. The group of interest was all the SMEs in Gikomba market registered with Nairobi City County. Nairobi City County License register of 2018, there are 1040 business enterprises in Gikomba market with between 10 and 99 employees. Therefore, the target population of this study was1,040 managers/owners of business enterprises in Gikomba market. A stratified random sampling method was used to choose 288 owners/managers form the target population. The study used primary data, which was collected by use of semi-structured questionnaires. The study conducted pilot test to assess the validity and reliability of the research instruments. In this research, both qualitative data and quantitative data were retrieved from semi-structured questionnaire. Different methods of data analysis were adopted to analyze this data. Thematic analysis was adopted to analyze qualitative data after which the results were presented in a prose form. Further, both inferential statistics and descriptive statistics were adopted to analyze quantitative data. This was done with the help of SPSS version 22. The study found that firm characteristics, credit access requirements, compliance with tax regulations and ownership control positively and significantly influence the adoption of voluntary audits among SMEs. The study concludes that firm characteristics, credit access requirements, compliance with tax regulations and ownership control have a significant influence on the adoption of voluntary audits for small and medium enterprises in Nairobi County. From the findings, this study recommends that the SME owners/managers should ensure proper record of all financial documents which includes cash flow statements. The study also recommends training programmes by the financial institutions to the SME owners/manager so at to increase the knowledge and skills on preparation of financial statements. Further SME owners/managers should ensure regular auditing of the financial statements so as to boost their access to credit facilities from financial institutions. To the management of SMEs the study provides information that can be used to develop strategies to enhance utilization of voluntary financial audits as a way of improving growth and performance among SMEs. To the policy makers the study provides information that can be used to formulate policies to enhance voluntary audits among SMEs in Kenya.
The Influence of fraud risk management on fraud occurrence and the moderating effect of firm size in Kenyan listed companies
(Strathmore University, 2020) Mwangi, Severinah Wanjiru
In Kenya, the fraud menace has led to the collapse of big corporations. One of the key factors leading to fraud to thrive is lack of sufficient or weak anti-fraud control systems. Based on numerous reviewed fraud studies there existed knowledge gap to establish the influence of fraud risk management practices on the level of fraud occurrence on listed firms in Kenya and if firm sizes moderates the relationship. Thus, this study sought to establish the moderating effect of firm size on the relationship between fraud risk management and fraud occurrence in Kenyan listed companies. This was guided by four specific objectives. The first objective was to assess the effect of preventive controls on the level of fraud occurrence on listed companies in Kenya. The second objective was to establish the effect of detective controls on the level of fraud occurrence on listed companies in Kenya. The third objective was to evaluate the effect of corrective controls on the level of fraud occurrence on listed companies in Kenya. Finally, the fourth objective was to determine the moderating effect of firm size on the relationship between fraud risk management and the level of fraud occurrence on listed companies in Kenya. The study adopted a causal research design. Structured questionnaires were employed to collect data on a sample of 275 senior managers working in the Kenyan listed companies. The descriptive results established that all the preventive, detective and corrective controls were perceived to be effective in curbing fraud occurrence on listed companies in Kenya. Concerning fraud occurrence, the descriptive findings ascertained that the severity level of fraud cases were moderately low on listed companies in Kenya. The Multiple linear regression results revealed that only preventive and corrective controls had a profound negative effect on the degree of fraud occurrence on listed companies in Kenya. Conversely, detective controls had no significant effect on the degree of fraud occurrence on listed companies in Kenya. The study also observed that firm size had no profound effect on the relationship between the three assessed fraud risk management controls and the level of fraud occurrence on listed companies in Kenya. The major implication of the study is that the implementation of the most effective anti-fraud techniques requires the goodwill of the top management. If the top management pays no attention on seeing to it that the most effective anti-fraud techniques are properly and frequently employed. The fraud risk management controls would amount to nothing even if sufficient financial and human resources are devoted in procuring them. Additionally, corrective controls must be seriously looked into as an effective strategy of curbing fraud since they indeed are instrumental in curbing fraud.
Analysis of volatility spillover from market to market in the East Africa capital markets
(Strathmore University, 2020) Were, Judith Osimbo
The existence of spillover effects is created by co-movement in the international stock prices and for international portfolio diversification to be considered effective, the level of spillovers among stock markets need to be so low or close to nonexistent so that one national market that is performing poorly can be hedged by the international market. The study purposed to model volatility effects between stock markets in the East African securities markets and analyze the behavior of volatility spillover and volatility persistence. The study was guided by three theories, the Efficient Markey Hypothesis, Random Walk Hypothesis, and the Arbitrage Pricing Theory. Four markets in East Africa were studied namely NSE, USE, DSE and RSE. Data comprising of the closing daily stock indices was obtained from secondary sources for the sample period of 2009 to 2019. The Exponential Generalized Autoregressive Conditional Heteroscedastic (E-GARCH 1,1) model and the Glosten, Jagannathan and Runkle Generalized Autoregressive Conditional Heteroscedastic (GJR-GARCH 1,1) model were used to model the asymmetric volatility and volatility persistence between the markets and was estimated using R. These models were selected based on empirical results which showed the GJR-GARCH model as the best fit for RSE and the E-GARCH model as the best fit for NSE, DSE, and USE. The findings show existence of volatility asymmetry in NSE, USE, and DSE, RSE. NSE, USE, and DSE showed positive volatility asymmetry with fat right tails. For RSE, bad news has larger effects than good news. Further, the results also show the presence of volatility persistence in the four markets, with some experiencing larger persistence than others. This indicates that turbulence takes a long duration to settle down in these markets. The study recommends regime specific volatility spillover modelling or Granger causality models for further analysis.
The Influence of monitoring and evaluation on project success among Non-Governmental Organisations (NGOs) in Nairobi County, Kenya
(Strathmore University, 2020) Mbithi, Patrick D.
The main objective of this study was to establish the influence of monitoring and evaluation on project success among non-governmental organisations (NGOs) in Nairobi County, Kenya. Specifically, the study sought to establish the influence of strength of monitoring and evaluation team on project success among NGOs in Nairobi County, Kenya. It also sought to determine the influence of monitoring and evaluation approach on project success among NGOs in Nairobi County, Kenya. Finally, the study sought to establish the influence of budgetary allocation for monitoring and evaluation on project success among NGOs in Nairobi County, Kenya. The study was based on program and evaluation theories. The study used a descriptive research survey design targeting 100 NGOs operating in Nairobi County as the sample. Further, the study used mixed sampling method sampling reaching out to program and project managers or coordinators and M&E officers or their designate. The primary data was collected using questionnaires either posted or hand delivered. The study made use of IBM SPSS Statistics (SPSS Version 24.0) for data analysis. The study used descriptive statistics and correlation analysis to show the relationship between the dependent and the independent variables. The findings of the study found that the M&E approach and budget allocation for M&E activities were statistically significant while M&E team had no statistical significance Therefore, the study finds M&E approach and budget allocation for M&E activities in a project to influence the success of project success among NGOs in Nairobi County. Accordingly, the study concludes that monitoring and evaluation influences the success of projects in Nairobi County, Kenya. Thus the study recommends that non-governmental organisations allocate sufficient funds for monitoring and evaluation, use the most appropriate monitoring and evaluation approaches as well as have functional M&E team with competent monitoring and evaluation staff to improve the project success. The limitations of the study included the cross-sectional approach of research design and thus, the results are to be interpreted within such period. Therefore, future studies could consider longitudinal studies and results compared. Furthermore, the study focused on monitoring and evaluation factors that affect project success. Therefore, future studies could consider establishing and incorporating other factors that might have influence on project success.
Influence of cultural intelligence on employee performance in international humanitarian research organizations in Kenya
(Strathmore University, 2020) Shikanga, Sharon Masitsa
Currently, the world has become a global community as people are working across cultures, countries, and continents hence the need for firms to take part in cross-cultural and international business. Cultural intelligence has become a device that helps people to interact effectively with people drawn from other cultures. The deficiency of cultural intelligence results in stereotypes, poor relationships, cultural shock and stress. Cultural intelligence has attracted the attention of the academicians and scholars with reference to cross-cultural management research studies. Many studies conducted have observed that cross-cultural intelligence improves employee performance. Presently, there exists limited research to establish the influence of cultural intelligence on employee performance within Kenya in the context of international humanitarian research organizations. Thus, the main purpose of this research was to establish the influence of cultural intelligence on employee performance in the context of international humanitarian research organizations based in Kenya. This was achieved by specifically establishing the influence of metacognitive, cognitive, motivational and behavioral cultural intelligence factors on employee performance. The targeted respondents were 150 employees from 15 international humanitarian research organizations which are underneath the canopy of the consultative group for international agricultural research organizations based in Nairobi, Kenya. A survey design was adopted which was used to generalize the findings representing the entire population. A questionnaire developed by Ang et al. (2007), was utilized to measure CQ and address each of the four CQ dimensions. The questionnaire items addressing employee performance were developed from various literature with additional questions added in. Cronbach’s Alpha results revealed that the questionnaire items exhibited a high level of internal consistency. Descriptive statistics were employed to establish the perceived level of cultural intelligence factors and employee performance. The results regarding metacognitive intelligence revealed that the employees utilize cultural knowledge when associating with individuals from different cultures. Regarding cognitive cultural intelligence, the findings observed that the employees were aware of the marriage, legal and economic systems of other societies. Whereas motivational cultural intelligence the findings established that the employees enjoy living in different cultures and are confident in socializing with people from different cultures. With behavioral cultural intelligence the findings indicated that the employees easily change their verbal behaviors when a cross-cultural interaction demands it. Finally, regarding employee performance the descriptive results revealed that the employees are highly productive, they deliver services efficiently and they produce quality work that is satisfactory. The research investigation used a factor analysis model to condense the questionnaire statements into four factors of cultural intelligence namely; metacognitive, cognitive, motivational and behavioral it also produced a single employee performance factor. Spearman’s rho correlation model and multiple linear regression model were used to establish the influence of metacognitive, cognitive, behavioral and motivation on employee performance. The Spearman’s rho correlation analysis results revealed that all cultural intelligence factors had a positive significant relationship with employee performance though the relationships were weak. The findings of the Multiple Linear regression analysis revealed that the three cultural intelligence variables had a positive significant influence on employee performance except cognitive cultural intelligence which had an insignificant influence on employee performance. The key shortcoming of this research inquiry was the exclusive utilization of questionnaires to collect data. Future studies should consider employing interview guides to collect qualitative information and use secondary sources to retrieve secondary data, in order to triangulate the research findings to deliver a deeper comprehension of the influence of cultural intelligence on employee performance.
Assessing the efficacy of business incubation in Nairobi County, Kenya: an incubatee’s perspective
(Strathmore University, 2020) Tiren, Diana
This study was aimed at determining the efficacy of business incubation on firm success from an incubatee’s perspective. The study was conducted on firms in Nairobi County that have experienced business incubation. The general objective was addressed by four specific objectives. The first specific objective was to determine the effect of business incubation resources on incubatee firm success. The second was to examine the influence of entrepreneurial traits and competences on incubatee firm success. The third was to establish the moderating effect of challenges faced by incubatees in the business incubators. The fourth was to propose how business incubation can be improved. This study was underpinned by the human capital development theory, personality trait theory of entrepreneurship and networking theory. Questionnaires were administered to the respondents who were incubatees in incubation programmes in Nairobi County. The incubatees were identified through snowball sampling as well as through the incubator managers. The sample size was 384 incubatees. This sample was arrived at using the Cochran’s sample size formula for calculating sample size of unknown populations. Data analysis was done using descriptive and inferential statistics. The findings revealed first, that the greatest efficacy of business incubation can be explained when an entrepreneur is innovative, creative, a risk taker, reliable, and a good identifier and exploiter of new opportunities. Second, that business incubation resources, entrepreneurial traits and competences had a positive significant relationship with incubatee firm success in terms profitability and time at point of exit. Third, that the challenges facing the incubatees included lack of funding, inadequate incubator facilities and infrastructure, inadequate qualified employees at the incubator and weak incubator administration. However, the moderating effect of the challenges was not statistically significant. Fourth, that business incubation can be improved by increasing the availability of funding through government support, improving incubation facilities and services, and evaluating the performance of incubators. Key recommendations to the managers of business incubators and the policy makers is to create policies and enhance existing business incubation programmes to focus primarily on improving incubatee access to business training and skills, business networks, and financial resources. Additionally, incubator managers should improve on administration and staffing to enhance the business incubation experience.
Influence of fraud prevention and detection techniques on fraud and moderating effect of firm revenue in Kenyan State Corporations
(Strathmore University, 2020) Kangogo, Sharon
The main goal of this research study was to establish the influence of fraud prevention and detection techniques on fraud and moderating effect of firm revenue in Kenyan state corporations. The main purpose of the study was addressed by three specific objectives. The first specific objective of this study was to establish the influence of fraud prevention techniques on fraud in Kenyan state corporations. The second specific objective of the study was to establish the influence of fraud detection techniques on fraud in Kenyan state corporations. Finally, the third objective was to establish the moderating effect of firm revenue on the influence of fraud prevention and detection techniques on fraud in Kenyan state corporations. Questionnaires were utilized to retrieve primary information that informed the independent variables and dependent variable. Moreover, secondary data was retrieved from the Auditor General Audited Annual Reports of the State Corporations, which also informed the dependent variable. Multiple Linear and Logistic Regression analysis were employed to establish the influence of fraud prevention and detection techniques on fraud in Kenyan State Corporations and if the influence was controlled by firm size. Multiple Linear Regression analysis revealed that fraud prevention and detection techniques significantly mitigates fraud in Kenyan State Corporations. Additionally, the results ascertained that firm revenue significantly controls the influence of fraud prevention and detection techniques on the mitigation of fraud in Kenyan State Corporations. The findings of the logistic regression analysis was not used for discussion since the model summary posted insignificant results. The implication of this study is that it provides a framework of preventive and detective techniques that are effective in curbing fraud, which has not been stated in Mwongozo code of conduct. Thus, it can be incorporated in Mwongozo code of conduct or a separate policy guideline should be developed. The study chips in to the present research knowledge of the relationship between preventive and detective techniques by broadening the scope to incorporate how firm revenue plays a fundamental role is mediating the relationship. The limitation of the study was that although the respondents who were the accounting professions were deemed to have the needed information on anti-fraud controls and fraud aspects in State corporations, the study could not wholly confirm that it obtained credible information on the effectiveness of anti-fraud controls and the degree of fraud occurrences.
The influence of corporate culture on operational performance of multi-national companies in Kenya
(Strathmore University, 2020) Awino, Lavender Okore
The complexity and dynamism of the business environment has resulted in multinational companies heavily investing in building the right working environment for their employees. Multinational companies face a number of challenges, one of them being fostering cooperation among different actors in the organization while focusing on the company’s strategic goals and long-term objectives. The operational performance of multinational companies in Kenya has been declining since 2016 and some of them moved their operations to other regional hubs other than Nairobi. This study sought to establish how various cultural dimensions (market, adhocracy, bureaucratic and consensual) affect the operational performance of these multinational companies. The research study was anchored on Edgar Schein’s Model of Culture and the Contingency Theory. The study adopted a quantitative research design; specifically descriptive cross-sectional survey technique. The researcher administered structured questionnaires traditionally from a selected sample of 450 respondents. Data collected was analysed using descriptive statistics, correlation analysis and regression analysis. The results on the synergetic influence however showed that only adhocracy and bureaucratic culture had a significant positive influence on oper ational performance. Market culture and consensual culture had a positive influence that was not significant. This study contributes to theory by building on the prevailing theoretical frameworks such as the Edgar Schein model and boosting the understanding of the various dimensions of corporate culture and the possible influence that each culture trait could have on organizational outcomes. Empirically, the study guides management practices by diagnosing corporate traits as the first step to managing people effectively especially in instances where activities such as recruitment, on-boarding, performance management and innovation are being carried out by the organization. Regarding policy formulation, the study informs organizational policy development encompassing issues such as recruitment and selection, reward systems, compliance, customer engagement, performance appraisals and employee development. The findings of this study were limited to the classifications of the dimensions of corporate culture and operational performance adopted by the researcher. The study was also limited to data collected using cross-sectional sur vey, yet corporate culture may be affected by time, unprecedented occurrences and technological advancements that may warrant disruptions in the manner in which a business carries out its day to day activities. Lastly, the response rate was limited by the prevailing conditions of the COVID 19 pandemic. Future studies could address these limitations.
Perception of the effectiveness of fraud prevention and detection techniques in Kenyan county governments
(Strathmore University, 2020) Aloo, Consolata
There is need for adoption that would curb the likelihood of fraud happening. Failure of these measures to curb should be curtailed through development of fraud identifiers and preventive mechanisms. Reliance of audit report by County government may fail to achieve desired results even long after it has been effected. This may have consequential effect on loss of organization sustainability that would collapse the system deployed for service delivery. Moreover, this discovery may lead to reactive response instead of proactive approach by County government. Consequently, the current study sought to establish the perception of the effectiveness of fraud prevention and detection techniques in Kenyan county governments. Particularly, to establish the fraud prevention and detection techniques implemented in Kenyan county governments. To analyze the perceived effectiveness of fraud prevention and detection techniques implemented in Kenyan county governments. The study was anchored on the fraud triangle theory and fraud management lifecycle. The study adopted positivism research philosophy and mixed research design. Primary data was collected through questionnaires administration among 3 respondents (internal auditor, accountant and external auditor) from 47 counties. Similarly 3 respondents (An accountant, senior internal auditor and senior forensic investigator) responsible for county audits drawn from the Auditor General’s Office partook an in-depth interview. A total of 144 respondents were considered in the study. Quantitative data was analysed through use of descriptive statistics and Kruskal-Wallis. Qualitative data was analysed through content and thematic analysis. Results of the study indicates that County government in Kenya has adopted that fraud prevention techniques are often implemented in Kenyan county governments. Accordingly, with the mean of 3.9, it is incidental that the respondents have acknowledged to the parameters of fraud detection techniques that those measures are always implemented. It was found that most respondents consented that, the perceived fraud prevention techniques on fraud in county governments were very effective as shown by the grand mean of 4.2. Majority of the respondents generally agreed that indeed the perceived effectiveness of fraud detection techniques on fraud in Kenyan county governments was very effective as shown by the grand mean of 4.2. Consequently, it can be deduced that according to the respondents, the perceived fraud detection techniques on fraud in county governments were very effective. It was recommended that the county government should lay emphasis on enhancing contract reviews, discovery sampling and fraud reporting policy among other techniques for fraud prevention. There is need for analytical review and audit committee as techniques for fraud detection should be enhanced at the county level. There should be harmony with regards to the execution of finance activities by employees at the county level and those responsibilities of the Auditor General’s Office in order to mitigate material misstatement which is regularly discovered by the Auditor General’s report
An examination of the drivers of external audit quality of Commercial Banks in Kenya
(Strathmore University, 2020) Shitandi, Anthony Ongoma
This research focused on establishing whether adoption of the International Professional practicing Framework (IPPF) by Internal Audit Activities (IAA) of Commercial Banks has an effect on the quality of External Audit reporting. The study used census sampling as it targeted two staff from each of the 42 commercial banks regulated by Central Bank of Kenya. This study utilised primary method of collecting data, by use of questionnaire, as well as secondary data that was generated through a review of relevant documents. The correlation findings show that characteristics of external audit was positively correlated to audit quality (r=0.542, p = 0.01). The results of the regression analysis indicate that external audit characteristics has an impact on external audit quality to a high degree. The influence of the external audit characteristics decreases after the introduction of IPPF (B=0.693, p = 0.01). The influence of governance and management is neither felt before nor after the introduction of IPPF. The mediator, in this case, is the international professional practice framework (IPPF). If significant, MV causes the relationship between the independent and dependent variables to weaken. If not significant, IPPF simply becomes an independent variable. IPPF was found to slightly influence audit quality (B=0.094, p = 0.01). The study established that adoption of IPPF positively influenced the quality of external auditing. The study also found out that external audit characteristics significantly influenced the quality of the external audit. Further, the study established that governance and management of banks influenced the quality of external audits. Commercial banks IAA should, therefore, be encouraged to follow IIA guidelines on the international professional practice framework. The guidelines of IPPF ensure that the internal audit functions are as per the recommended standards. They should also re-evaluate their governance and management to see whether they meet the standards set by CBK as well as IIA. A wider study needs to be conducted to focus on both public and private institutions in Kenya.
Association between executive directors’ remuneration and earnings management among banks in Kenya
(Strathmore University, 2020) Mohamed, Yasmin
This study established the association between executive directors’ remuneration and earnings management among banks in Kenya. The research adopted descriptive design. A sample of 34 banks operational over the 12-year period, 2007-2018 was selected. The study used semi structured questionnaires for primary data collection from a sample of accountants, internal auditors and finance managers operating in banks in Kenya. The study used secondary data from the individual financial statements and annual reports by commercial banks to collect data regarding information related to the total aggregate amount of executive directors’ remuneration and the control variables. Discretionary loan loss provision model was used to assess for cases of earnings management from the secondary data retrieved. Both the ordinary least square regression and fixed effects regression models were used. Primary data was analyzed using descriptive statistics and triangulated to observations from secondary data. The results retrieved from both analyses was used for comparison to establish whether there was an agreement or conflict of the findings between the primary and secondary data. The discretionary loan loss provision model found that there was income-increasing and income decreasing discretionary accruals, proxy for earnings management among the banks, which was consistent with the respondents’ beliefs. In addition, consistent with the agency theory hypothesis, the study established that there was negative but not statistically significant association between executive compensation and earnings management. However, respondents indicated that stock compensation and bonus payment had a positive impact on earnings management while cash compensation had none. Policy makers and regulators in the industry are encouraged to monitor patterns and trends of earnings management practices for guidelines issuance. Researchers are encouraged to explore other bank specific models of estimating discretionary accruals. One of the limitations was that some of the respondents were reluctant to take part in the study citing policies that prevented them from providing information before obtaining approvals.
Influence of fraud on operational performance in non-governmental organizations within Nairobi County
(Strathmore University, 2020-06) Chesimo, Clare Cheptegen
Fraud is a global trend that has existed for long and it increases every day. This study sought to investigate the factors that influence of fraudulent transaction and effect on operational performance in NGOs within Nairobi County. Different findings have been found by various researchers on the same area of study but with conflicting findings. Some concluded that only three factors lead to fraud (Pressure, Rationalization and Opportunity) while others found that there are more other factors that influence the fraud occurrence. The aim of the study was to identify factors that influence fraudulent transactions within NGOs and to examine their impact on operational performance of NGOs. The study was anchored on the Agency theory, Fraud Triangle Theory, Fraud Diamond Theory and Fraud Pentagon Theory. It adapted a descriptive research design and a positivism philosophy with a target population of 702 for the registered NGOs operating within Nairobi County and recognized by the NGOs Board. Slovin’s formula was adapted for a sample size which was 87. The study used primary data gathered through structured questionnaires. Sampling was done using Slovin’s formula. The factor analysis results show that although several fraud variables impact the operational performance of NGOs, only regulations and rationalizations are significant. The major effect identified were loss of future donors, bankruptcy, inability to meet the project objectives and job loss among employees as a result of any fraudulent transaction discovered within NGOs. The limitation encountered was by use of questionnaire which promotes anonymity that may result in totally dishonest respondents. The findings of the research are beneficial to policy makers within the context of the NGOs and on the growing debate concerning accountability and responsibility of employees within NGO sectors and guide the management on the need to emphasize the reinforcement of internal controls implementation and monitoring. Future studies may be done on the same with focus on quantifying the impact caused by fraudulent transactions.
The Influence of product diversification and firm characteristics on performance of companies listed at Nairobi securities exchange
(Strathmore University, 2020-08) Muchiri, Stephen Kamau
This study sought to establish the influence of product diversification and firm characteristic on performance of listed companies at Nairobi Securities Exchange which was guided by three specific objectives. The first specific objective was to determine the motives of product diversification on companies listed at the Nairobi Securities Exchange. The second specific objective was to establish the effect of product diversification on performance of companies listed in Nairobi Securities Exchange. The third specific objective was to establish the effect of product diversification and firm characteristics on the performance of companies listed in the Nairobi Securities Exchange. The study adopted a correlation research design. Census method was used to study all the targeted population which was the listed firms at the Nairobi Securities Exchange. Primary data was collected through questionnaires to address the first objective. Secondary data was collected from the audited financial reports of the listed firms to address the second and the third objectives. The financial data ranged between 2011 and 2017. The variables being studied were performance, diversification, size and age of the companies. Descriptive analysis was employed to analyze both primary and secondary data. The primary role of the model was to establish the major motives of product diversification. Pearson correlation and Multiple Linear regression models were employed to establish the effect of product diversification and firm characteristic on performance. The findings revealed that the major motives of diversification were to minimize risk and increase tax shield in order to enhance the capacity to borrow and to access more markets. The second specific objective, both the correlation and regression analysis revealed that product diversification had a negative significant influence on firm performance. The third specific objective, the regression analysis results revealed that firm age and firm size as firm characteristics had a positive significant influence on firm performance. Thus, listed firms which have advanced in age and have plenty of resources experienced a high degree of performance. The fourth specific objective, revealed that firm age and firm size has a positive significant influence on performance of diversified firms. The study was only limited to listed firms at the Nairobi Securities Exchange. Future studies could consider studying all firms whether listed or not listed in each sector. Additionally, future studies could distinguish between related and unrelated product diversification.

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