Abstract:
Purpose: The study tested the hypothesis about the relationship between
corporate diversification and financial performance. Moreover, moderating
effect of firm size on the relationship between corporate diversification and
financial performance of listed firms at Nairobi securities exchange (NSE) in
Kenya was tested.
Methodology/Approach/Design: The study was informed by market power
and resource-based view (RBV) theories. To test the hypotheses, secondary
panel data were collected from 35 listed firms at NSE from 2003 to 2017.
Results: From panel regression analysis output, there was a significant
positive (β = 2.225, p value = .000 < .05) relationship between corporate
diversification and financial performance. Furthermore, firm size had a
negative and significant (β = -.155, p value = .031<.05) moderating effect in
the relationship between corporate diversification and financial performance.
Practical Implications: The study thus concluded that firm size had a
buffering effect in the link between corporate diversification and the financial
performance of listed firms in Kenya. The findings of the study could be
relevant to policymakers in drafting policies that affect diversification
strategies of firms. For further research, the study recommended an increase
of scope, other measurement approaches, analysis of corporate diversification
from different perspectives other than product, and controlling for board
characteristics.
Originality/Value: The study while controlling the age of the firm tested the
moderation effect of firm size in the relationship between corporate
diversification and financial performance.
