Relationship between Portfolio Diversification and Financial Performance of Large Enterprises in Kisumu County, Kenya

Abstract

This study intended to explore the relationship between portfolio diversification and the financial performance of large businesses in Kisumu County, Kenya. The research questions of the study were; what is the relationship between stock and bond and the financial performance of large enterprises in Kisumu County, Kenya? The study was anchored on Modern Portfolio. A descriptive survey research design was adopted for the study. The statistical procedures of Yamane (1973) were subsequently employed to acquire a sample size of 225 out of a population of 1283 large enterprises; a random sampling procedure was adopted to facilitate the process. The research instrument was a document analysis guide. The study adopted both descriptive and inferential statistics for data analysis. Descriptive statistics involves the use of frequency, mean and standard deviation. The relationship between portfolio diversification and the financial performance of major enterprises in Kisumu County was explored using Pearson’s correlation and regression analysis. Data were presented using tables and figures. The researcher utilised regression analysis to specifically evaluate the null hypothesis. The results indicated that stock investment was positively related to financial performance. (β= 0.172, p- value=0.025< 0.05) of large enterprises in Kisumu County. Moreover, the findings corroborated the existence of a causal link between bond investment and financial performance (β= 3.2, p-value=0.001 < 0.05 of large enterprises in Kisumu County. Financial performance was found to benefit greatly from portfolio diversification (β= 4.875, p-value=0.023 < 0.05) of large enterprises. Furthermore, portfolio diversity accounts for 72.1% of the variance in financial performance across major businesses. The study recommends that business owners and managers diversify their investment portfolios across asset classes to mitigate risks and capitalise on opportunities in a variety of market conditions. This study recommends further investigation of the obstacles large enterprises face when diversifying their portfolios.