Corporate Diversification, Macroeconomic Factors and Performance of Quoted Deposit Money Banks in Kenya: An Empirical Assessment
Keywords:
Income diversification; exchange rate; returns on assetAbstract
This study empirically examines the influence of corporate diversification, macroeconomic
factors on performance of quoted deposit money banks in Kenya within a period of 2007- 2017.The
study employs secondary data collected from deposit money banks annual audited financial statements.
Employing the use of descriptive statistics, correlation analysis, panel unit root analysis, co-integration
test and feasible generalized least squares (FGLS), the data were estimated with the aid of E-views 9.0
econometric statistical package. Using dependent variables (Returns on Assets and Tobin Q),
explanatory variables of income diversification, foreign diversification, subsidiary diversification,
exchange rate and inflation rate. The findings revealed that income diversification have positive and
significant effect on all the performance indicators (ROA and TOBIN Q) used in the study and were
significant at 1% significance level. Foreign diversification and Subsidiary diversification have mixed
findings under the two performance variables. Exchange rate has a positive and significant impact on
performance, and inflation rate was negative and significant. This study therefore recommends,
amongst others, that deposit money banks should carefully adopt a strategy that will warranty ideal
location forecasting and execution as this will further boost financial annexation in the system.
References
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case study of the Norwegian banking market. SNF working paper no 09/17.
Adzobu, L. D.; Agbloyor, E. K. &Aboagye, A. (2017). The effect of loan portfolio diversification on
banks’ risks and return: evidence from an emerging market. Managerial Finance, 4(1), pp. 28-44.
Akani, H. W.; Nwana, I. & Mbachu, A. (2016). Effects of selected macroeconomic variables on
commercial banks performance in Nigeria. International Journal of Banking and Finance Research,
2(3), pp. 34-68.
Arasa, S. O. (2014). Diversification strategy and performance of Kenya commercial bank group. A
master’s thesis submitted to the Department of School of Business. University of Nairobi.
Berg, J. V. (2016). Corporate diversification and firm performance: The effect of the global financial
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administration. University of Groningen.
Brealey, R. A.; Myers, S. C. & Marcus, A. J. (2009). Fundamentals of Corporate Finance. 6th ed.
McGraw –Hill.
Chen, S. & Ho, K. W. (2000). Corporate diversification, Ownership structure and firm value.
International Review of Financial-Analysis, 9(3), pp. 315-326.
Chen, Y.; Wei, X.; Zhang, L. & Shi, Y. (2013). Sectoral diversification and the banks’ return and risk:
evidence from Chinese listed commercial banks. Procedia Computer Science, 18, pp. 1737-1746,
available at: https://doi.org/10.1016/j.procs.2013.05.342 (accessed May 3, 2016).
Çolak, G. (2010). Diversification, refocusing and firm value. European Financial Management, 16, pp.
422–448
Doaei, M., & Shavazipour, B. (2013). Corporate diversification’s effects on efficiency and productivity:
case study of manufacturing firms listed in Bursa Malaysia. International Journal of Business and
Development Studies, 5(1), pp. 77-96.
Doukas, J. A. & Kan, O. B. (2006). Does global diversification destroy firm value? Journal of
International Business Studies, 37(3), pp. 352–371.
Ekanayake, N. (2017). Income diversification and bank risk-return trade-off: evidence from an
emerging economy. Asian Economic and Financial Review, 7(7), pp. 644-655.
Elif, A. (2015). Corporate diversification and firm value: evidence from emerging markets.
International Journal of Emerging Markets, 10(3), pp. 294-310.
Elton, E. J.; Gruber, M. J., & Blake, C. R. (1997). Modern Portfolio Theory, 1950 to Date. NYU
Working Paper No.FIN-97-003. Available at SSRN: https://ssrn.com/abstract=1295211.
Jouida, S.; &Hellara, S. (2017). Diversification, capital structure, and performance: A simultaneous
equation approach. Manage Decision Economics. 2, pp. 1–14.
Lang, L., &Stulz, R. (1994). Tobin’s Q, corporate diversification, and firm performance. Journal of
Political Economy, 102(6), pp. 1248 – 1280.
Manyuru, A.; Wachira, M. &Amata, E. (2017). The impact of corporate diversification on firm value
in Kenya. African Journal of Business Management, 11(11), pp. 241-2419.
Markowitz, H. (1952). Portfolio selection.Journal of Finance, American Finance Association, 7(1), pp.
77-91.
Muneer, S.; Jahanzeb, A. & Suwandi (2016). Income diversification and performance: a comparison of
commercial and Islamic banks of Pakistan. Abasyn Journal of Social Sciences, Special Issue, pp. 471 -
485
Ongore, V. O. & Kusa, G. B. (2013). Determinants of financial performance of commercial banks in
Kenya. International Journal of Economics and Financial, 3(1), pp. 237-252
Osamwonyi, I. O. &Chijuka, I. M. (2014). The impact of macroeconomic variables on the profitability
of listed commercial banks in Nigeria. European Journal of Accounting Auditing and Finance
Research, 2(10), 85-95.
Osayi,V. I.; Kasimu, A. & Nkwonta, H. C. (2018). Financial market derivatives and the performance
of deposit money banks in Nigeria. International Journal of Economics, Commerce and Management,
VI (11), pp. 382-397.
Osifo, O. (2019). Corporate diversification and performance of quoted deposit money banks in selected
sub-Sahara African countries: The effect of the global financial crisis on diversification in India.
Unpublished PhD thesis submitted to the department of banking and finance. University of Benin.
Benin City.
Osundina, C. K.; Osundina, J. A.; Jayeoba, O. O. & Olayinka, I. M. (2016). Exchange rate volatility
and banks performance: Evidence from Nigeria. International Journal of Banking and Finance
Research, 2(4), pp. 1-11.
Oweis, A. (2012). The impact of corporate diversification on the financial performance of U.S. Bank
holding companies pre and post the financial services modernization act of 1999. CGU theses &
dissertations, 58. http://scholarship.claremont.edu/cgu_etd/58. doi: 10.5642/cguetd/58.
Owoeye, T. & Ogunmakin, A. A. (2013). Exchange rate volatility and bank performance in Nigeria.
Asian Economic and Financial Review, 3(2), pp. 178-185.
Phung, D. N., & Mishra, A. V. (2017). Corporation diversification and firm performance: Evidence
from Vietnamese listed firms. Australian Economic Papers, 55(4).
Ravichandran, A. & Bhaduri, D. S. (2015). Diversification and firm performance: A study of Indian
manufacturing firms. Retrieved December 18, 2015, from Munich Personal RePEc Archive:
https://mpra.ub.unimuenchen.de/id/eprint/68013.
Turkmen, S. Y. & Yigit, I. (2012). Diversification in banking and its effect on bank performance:
Evidence from Turkey. American International Journal of Contemporary Research, 2(12), pp. 110-119
Ugwuanyi, G. O.; Ani, W. U.; Ugwu, J. N. & Ugwunta, D. O. (2012). Impact of corporate
diversification on the market value of firms: A study of deposit money banks Nigerian. European
Journal of Business and Management, 4 (8), pp. 47-56.
Ugwuanyi, G. O. & Ugwu, J. N. (2012). The effect of corporate diversification on the profitability of
the financial services sector in Nigeria. International Scholarly and Scientific Research & Innovation,
6(7), pp. 78 – 83.
case study of the Norwegian banking market. SNF working paper no 09/17.
Adzobu, L. D.; Agbloyor, E. K. &Aboagye, A. (2017). The effect of loan portfolio diversification on
banks’ risks and return: evidence from an emerging market. Managerial Finance, 4(1), pp. 28-44.
Akani, H. W.; Nwana, I. & Mbachu, A. (2016). Effects of selected macroeconomic variables on
commercial banks performance in Nigeria. International Journal of Banking and Finance Research,
2(3), pp. 34-68.
Arasa, S. O. (2014). Diversification strategy and performance of Kenya commercial bank group. A
master’s thesis submitted to the Department of School of Business. University of Nairobi.
Berg, J. V. (2016). Corporate diversification and firm performance: The effect of the global financial
crisis on diversification in India. Master’s thesis submitted to the department of business
administration. University of Groningen.
Brealey, R. A.; Myers, S. C. & Marcus, A. J. (2009). Fundamentals of Corporate Finance. 6th ed.
McGraw –Hill.
Chen, S. & Ho, K. W. (2000). Corporate diversification, Ownership structure and firm value.
International Review of Financial-Analysis, 9(3), pp. 315-326.
Chen, Y.; Wei, X.; Zhang, L. & Shi, Y. (2013). Sectoral diversification and the banks’ return and risk:
evidence from Chinese listed commercial banks. Procedia Computer Science, 18, pp. 1737-1746,
available at: https://doi.org/10.1016/j.procs.2013.05.342 (accessed May 3, 2016).
Çolak, G. (2010). Diversification, refocusing and firm value. European Financial Management, 16, pp.
422–448
Doaei, M., & Shavazipour, B. (2013). Corporate diversification’s effects on efficiency and productivity:
case study of manufacturing firms listed in Bursa Malaysia. International Journal of Business and
Development Studies, 5(1), pp. 77-96.
Doukas, J. A. & Kan, O. B. (2006). Does global diversification destroy firm value? Journal of
International Business Studies, 37(3), pp. 352–371.
Ekanayake, N. (2017). Income diversification and bank risk-return trade-off: evidence from an
emerging economy. Asian Economic and Financial Review, 7(7), pp. 644-655.
Elif, A. (2015). Corporate diversification and firm value: evidence from emerging markets.
International Journal of Emerging Markets, 10(3), pp. 294-310.
Elton, E. J.; Gruber, M. J., & Blake, C. R. (1997). Modern Portfolio Theory, 1950 to Date. NYU
Working Paper No.FIN-97-003. Available at SSRN: https://ssrn.com/abstract=1295211.
Jouida, S.; &Hellara, S. (2017). Diversification, capital structure, and performance: A simultaneous
equation approach. Manage Decision Economics. 2, pp. 1–14.
Lang, L., &Stulz, R. (1994). Tobin’s Q, corporate diversification, and firm performance. Journal of
Political Economy, 102(6), pp. 1248 – 1280.
Manyuru, A.; Wachira, M. &Amata, E. (2017). The impact of corporate diversification on firm value
in Kenya. African Journal of Business Management, 11(11), pp. 241-2419.
Markowitz, H. (1952). Portfolio selection.Journal of Finance, American Finance Association, 7(1), pp.
77-91.
Muneer, S.; Jahanzeb, A. & Suwandi (2016). Income diversification and performance: a comparison of
commercial and Islamic banks of Pakistan. Abasyn Journal of Social Sciences, Special Issue, pp. 471 -
485
Ongore, V. O. & Kusa, G. B. (2013). Determinants of financial performance of commercial banks in
Kenya. International Journal of Economics and Financial, 3(1), pp. 237-252
Osamwonyi, I. O. &Chijuka, I. M. (2014). The impact of macroeconomic variables on the profitability
of listed commercial banks in Nigeria. European Journal of Accounting Auditing and Finance
Research, 2(10), 85-95.
Osayi,V. I.; Kasimu, A. & Nkwonta, H. C. (2018). Financial market derivatives and the performance
of deposit money banks in Nigeria. International Journal of Economics, Commerce and Management,
VI (11), pp. 382-397.
Osifo, O. (2019). Corporate diversification and performance of quoted deposit money banks in selected
sub-Sahara African countries: The effect of the global financial crisis on diversification in India.
Unpublished PhD thesis submitted to the department of banking and finance. University of Benin.
Benin City.
Osundina, C. K.; Osundina, J. A.; Jayeoba, O. O. & Olayinka, I. M. (2016). Exchange rate volatility
and banks performance: Evidence from Nigeria. International Journal of Banking and Finance
Research, 2(4), pp. 1-11.
Oweis, A. (2012). The impact of corporate diversification on the financial performance of U.S. Bank
holding companies pre and post the financial services modernization act of 1999. CGU theses &
dissertations, 58. http://scholarship.claremont.edu/cgu_etd/58. doi: 10.5642/cguetd/58.
Owoeye, T. & Ogunmakin, A. A. (2013). Exchange rate volatility and bank performance in Nigeria.
Asian Economic and Financial Review, 3(2), pp. 178-185.
Phung, D. N., & Mishra, A. V. (2017). Corporation diversification and firm performance: Evidence
from Vietnamese listed firms. Australian Economic Papers, 55(4).
Ravichandran, A. & Bhaduri, D. S. (2015). Diversification and firm performance: A study of Indian
manufacturing firms. Retrieved December 18, 2015, from Munich Personal RePEc Archive:
https://mpra.ub.unimuenchen.de/id/eprint/68013.
Turkmen, S. Y. & Yigit, I. (2012). Diversification in banking and its effect on bank performance:
Evidence from Turkey. American International Journal of Contemporary Research, 2(12), pp. 110-119
Ugwuanyi, G. O.; Ani, W. U.; Ugwu, J. N. & Ugwunta, D. O. (2012). Impact of corporate
diversification on the market value of firms: A study of deposit money banks Nigerian. European
Journal of Business and Management, 4 (8), pp. 47-56.
Ugwuanyi, G. O. & Ugwu, J. N. (2012). The effect of corporate diversification on the profitability of
the financial services sector in Nigeria. International Scholarly and Scientific Research & Innovation,
6(7), pp. 78 – 83.
Published
2020-07-13
How to Cite
Osifo, O. ., & Ighodaro, C. . (2020). Corporate Diversification, Macroeconomic Factors and Performance of Quoted Deposit Money Banks in Kenya: An Empirical Assessment: Array. Acta Universitatis Danubius. Œconomica, 16(3). Retrieved from https://dj.univ-danubius.ro/index.php/AUDOE/article/view/373
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