The impact of diversification on the financial performance of organisations listed on the industrial sector of the JSE

Corporate diversification is one of the fundamental strategic alternativesavailable to organisations to sustain growth and search for greater profits.International research has been conducted since the 1950s to establish ifdiversification creates value and if it resulted in greater financial performance.The findings are inconsistent and there remains a lack of consensus regardingthe diversification-performance relationship, although there has been a trendsince the 1990s of organisations focusing more on their core competencies. A quantitative research methodology was followed whereby organisations listedon the industrial sector of the Johannesburg Securities Exchange (JSE) werecategorised as either diversified or focused organisations. Each categoryconsisted of 15 organisations, against which four financial measures werecompared from the period 2001 to 2005 in the form of hypotheses, to determinewhich category of organisations performed better than the other. Three of the four performance measures are not statistically significant to provethat either the diversified group or the focused group of organisationsoutperformed the other. One of the financial measures is statistically significantand it was found that the Average Market Return (AMKTRET) of focusedorganisations outperform the AMKTRET of diversified organisations. Copyright © 2006 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria Please cite as follows: Rushin, LT 2006, The impact of diversification on the financial performance of organizations listed on the industrial sector of the JSE, MBA dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-03312010-153549/ > G10/261/ag