The Influence of product diversification and firm characteristics on performance of companies listed at Nairobi securities exchange

Abstract

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.