The effect of the level of diversification on corporate liquidity for firms listed at the Nairobi securities exchange
Abstract
This study sought to establish the effect of the level of diversification of unrelated
businesses on corporate liquidity for firms listed at the Nairobi Securities Exchange.
To achieve the objective of this study, a descriptive research design study was used to
establish the effect of the level of diversification on corporate liquidity for firms listed
at the Nairobi Securities Exchange. The target population of this study was listed
firms that have diversified into other businesses and investment. Stratified sampling
was used to select a sample which consisted of 30 companies listed in the Nairobi
Securities Exchange that has diversified. This sample was arrived at after taking into
consideration the availability of the listed companies’ financial statements and the
similarities that is associated with each sector they fall into. Diversification of
unrelated businesses was measured as the total assets a company has on another
company (in case of minority or majority holding), the amount of investment held in
other institutions securities market, money market, bond market. The study reviewed
secondary data for a period of five years (2008-2013). A multiple regression model
was used to analyze the data. From the results of the regression, it was revealed that
there was an indirect relationship between corporate liquidity and diversification
index with the level of interest while the relationship between corporate liquidity and
government deficit showed an inverse relationship. The study recommends that all
firms listed at Nairobi Securities Exchange to diversify their portfolios through
buying securities in the same asset class that are not affected by the same variables.
Furthermore, there are metrics that policymakers can use to measure these key
economic dimensions and ways that they can promote their nation’s long-term
economic health and stability. The limitations of this study were that the researcher
had to conduct this study within a limited time frame and resources which constrained
the scope and depth of the study A comparative study can be carried out to establish
whether the level of diversification in other countries is able to impact on corporate
liquidity of listed firms focusing more on commercial and services, financials and
investments, agriculture, financials and investments
Publisher
University of Nairobi