Effect of Investment Diversification on Financial Performance of Fims Listed at Nairobi Securities Exchange
Main Article Content
Keywords
Diversification, financial performance, Nairobi Securities Exchange, investment
Abstract
The study sought to investigate the effects of investment diversification on financial performance and was guided by Modern Portfolio Theory (MPT). The study adopted an explanatory research design and a panel approach to arrive at the study’s conclusions. This is because the study sought to explain the cause-and-effect relationship between the research variables. The total study target population comprised 67 firms listed at the NSE for thirteen consecutive years between the periods of 2011 and 2023. The study’s inclusion-exclusion criteria focused on firms that were in operation within the 2011-2023 period. As a result, the study surveyed 40 firms for 13 years. Therefore, 520 firm-year observations for the firms listed at the NSE. The study utilized secondary data obtained from the annual audited financial reports of firms listed on the NSE. Finally, data was analyzed using both descriptive and inferential statistics. The findings revealed that both firm size (β=0.0267) and investment diversification (β=0.0156) had a positive and significant effect on financial performance, while firm age showed a negative but significant effect (β=−0.0530). The study concludes that investment diversification significantly influences financial performance, providing evidence that companies or individuals who diversify their investments tend to experience better financial performance due to the reduction of unsystematic risk. This underlines the strategic importance of diversification for firms seeking to enhance resilience and stability in an emerging market.
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David Kipchirchir Koima , Department of Accounting and Finance, School of Business and Economics, Moi University, P.O. Box 3900, Eldoret, Kenya
Department of Accounting and Finance, School of Business and Economics, Moi University, P.O. Box 3900, Eldoret, Kenya
Collins Kapkiyai, Department of Accounting and Finance, School of Business and Economics, Moi University, P.O. Box 3900, Eldoret, Kenya
Department of Accounting and Finance, School of Business and Economics, Moi University, P.O. Box 3900, Eldoret, Kenya
Ronald Bonuke , Department of Marketing and Logistics, School of Business and Economics, Moi University, P.O. Box 3900, Eldoret, Kenya
Department of Marketing and Logistics, School of Business and Economics, Moi University, P.O. Box 3900, Eldoret, Kenya