Corporate Diversification and Financial Performance of Quoted Commercial Banks in Kenya

Abstract

Organization across different sectors globally have lately embraced the concept of corporate diversification. Commercial banks in the last ten years have entered into new markets, engaged in product lines or operate in a new geographical area to enhance their revenue streams, increase sales and boost their profitability. Despite all these, most commercial banks enlisted at NSE reported huge losses in their financial reports and hence the study would like to investigate whether there is any relationship between corporate diversification and financial performance of quoted commercial banks at NSE, in Kenya. The study applied panel survey research design approach and gathered secondary data study from 11 commercial banks enlisted at NSE. The study period ranging between 2014 and 2019. The corporate diversification indicated highly concentrated market. From the random effects model, corporate diversification had a negative and significant linkage with the performance of listed commercial banks at NSE in Kenya. As indicated by the empirical evidence, there is a negative and significant linkage between corporate diversification and performance of commercial banks listed at NSE, and a corresponding large value of HHI indicated excess diversification. The study therefore recommends for dynamic ways of being competitive in the market with an ultimate goal of increasing their performance. Top management teams need to define clearly the corporate purpose by outlining the direction in which they want to move.