Effect of Product Diversification on Financial Performance of Telecommunication Firms in Kenya

Abstract

Diversification strategies is a key tool firms across the globe have applied for decades to achieve their business objectives. The grounding theories for this study were Resource-Based Theory and Modern Portfolio Theory. Only a few studies on diversifying and financial performance of telecommunication firms have been conducted in Kenya, which is the gap and the current study aimed to respond to the question: what is the effect of product diversification on business performance of telecommunication firms in Kenya? The study adopted a descriptive cross sectional research design. The populace of the study comprised of telecommunication service providers operating in Kenya. Secondary data was used in the study. Out of the 95 projected data points, 95 were collected. This translates to a 100% response rate. Diversification, company size, growth, and capital structure are all independent variables that affected the return on assets of telecommunication companies, according to the study. Diversification had a positive relationship with ROA. Linearity and normality tests were performed, suggesting that the data was normally distributed. The multicollinearity VIF test yielded values of 1.022 to 2.431, which are in the 1–10 range, indicating that multicollinearity does not exist. The researcher recommended that managers of the various players in the telecommunication industry to come up with better management alternatives that assist in proper and effective implementation of diversification strategies. Future research should look into broadening the scope of the study to include both internal and external factors that may have influenced the business community's performance levels.