Impact of Diversification Strategies on Performance of Malaysian Public Listed Companies

Abstract:     
This study discusses the theoretical issues on diversification, corporate performance and the relationship between these two. It studies 91 listed firms in the Main Board of Bursa Malaysia (Trading/Services ranking) for determining the diversification-performance relationship. Generally, the main objective of this research is to find out if different levels of diversification lead to different levels of corporate performance or not? Besides, the study looks for the effect of economic situation on the diversification-performance relationship. The time period of the study was chosen from 1997 to 2010, including the 1997-1998 Asian financial crisis and the 2007-2008 Global financial crisis. Two methods were used by the researcher for analyzing the data and testing the hypotheses. Non Parametric Test (Kruskal_Wallis) and Multiple Regression are these two methods. The outcomes show inconsistency among the results of different years of the study. For some years the relationship between diversification and performance is significant and for some years it is not. This means the results of the study were affected by the time period of the study. On the other hand the result of the research shows higher economic performance among the firms which follow lower levels of diversification (i.e. Single and Dominant levels of diversification), this is different from the result of some earlier researchers like Rumelt (1974) and Bettis (1981), etc. which concluded that Related level of diversification leads firms to be more profitable in comparison with firms pursuing Single and Dominant levels of diversification. However the results were similar to the results of some researchers like Grinyer et al. (1980).

Keywords: behaviour, asset pricing, investments, stock prices

JEL Classification: G15

working papers series