A case study on influence of investment diversification on Financial performance of investment firms

Abstract

Organizations are operating in environments that are complex and unpredictable. Diversification has assumed position of universality in management process. The relationship between diversification and firm performance has been the subject of abundant research; past studies about effect of diversification on performance have yielded mixed results that are inconclusive and contradictory. The purpose of this study was to establish the influence of investment diversification on financial performance of investment firms; a study of Old Mutual Investment. Specific objectives included: To determine the influence of life assurance policy on financial performance of Old Mutual; to establish the influence of general insurance policy on financial performance of Old Mutual; and to establish the influence of property insurance on financial performance of Old Mutual. The study was guided by Modern Portfolio theory. It adopted a correlation survey research design. The study unit of analysis was Old Mutual whose operations and activities are spread in major towns. The target population was investment firms. The study sample size was Old Mutual Investment Holdings. The study adopted a non-statistical sampling design. Secondary data from financial statements was used. Descriptive statistics was used to summarize and analyze the data; regression analysis was used to assess relationship between variables and AN OVA was used to establish the significance and fitness of the model. Findings showed that life assurance policy does not affect profitability of' Old Mutual (p-value =0.007); general insurance policy affects only 0.1 % of Old Mutual profitability(p-value = 0.002) and property insurance policy affects only 0.3% of Old Mutual profitability (p-value = 0.007). Pvalues from all the independent variables are less than 0.05, meaning strong evidence against the null hypothesis so the null hypotheses of the study are rejected. The study concluded that: Life assurance, General insurance and Property insurance had statistical significant impact on profitability of Old Mutual with a weak positive correlation. The ·study recommends that firms should diversify more to increase the impact of diversification on profitability. The study suggests that further research on how diversification compares to other grand strategies should be done.