Abstract
This study examined the effect of corporate diversification on the financial performance of conglomerate firms in Nigeria. The nine (9) conglomerates firms listed on the Nigerian Stock Exchange as of 2019 formed the population and sample size for this study from 2011 to 2019. Corporate diversification was measured by; product, operational and geographical diversification. Panel least-square analytical method was used. Two-panel co-integration models were developed for empirical analysis to measure financial performance using Return of Assets (Book Value) and Tobin's Q (Market Value). The study's findings revealed that product diversification has a positive impact on the financial performance of conglomerates in Nigeria. However, operational and geographical diversification showed a negative but significant relationship between corporate diversification and the financial performance of conglomerates in Nigeria. It was concluded that corporate diversification has a dominant-negative impact on financial performance. However, only one form of corporate diversification (product) was positively related to financial performance. Therefore, the study recommends that conglomerates focus more on implementing geographical diversification strategy than other types of diversification as it encompasses a great deal of product and services promotions, which is key to improving annual sales and product awareness.
Highlights
Diversification as a management strategy is commonly used for business activities related to expansion into an extensive range of growing operations, which may include the addition of new markets, services, products, or various stages of production into the already existing business
This finding implies that conglomerates in Nigeria can improve their market performance from other income-earning derived from diversification of their products through value creation and risk reduction
We have painstakingly considered corporate diversification related to the performance of conglomerates in Nigeria
Summary
Diversification as a management strategy is commonly used for business activities related to expansion into an extensive range of growing operations, which may include the addition of new markets, services, products, or various stages of production into the already existing business. Diversification entails a strategic process a firm will extend its core business into additional product markets. Over the years' corporate diversification has become an essential strategy for many public limited companies. With these new strategy adjustments, firms have reacted rapidly and retained their competitive advantages (Nasiru, Ibrahim, Yahya & Aliyu, 2011). Diversified firms with well-established interests and financial discipline tend to apportion organizational resources more efficiently and effectively than firms that are not diversified. Ugwuanyi and Ugwu (2012) argued that diversified firms tend to outperform non-diversified firms when their abilities are exploited and maintain financial discipline rather than natural resources to empire-building
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