Abstract:
Corporate diversification is one of the fundamental strategic alternatives available to organisations to sustain growth and search for greater profits. International research has been conducted since the 1950’s to establish if diversification creates value and if it resulted in greater financial performance. The findings are inconsistent and there remains a lack of consensus regarding the diversification-performance relationship, although there has been a trend since the 1990’s of organisations focusing more on their core competencies. A quantitative research methodology was followed whereby organisations listed on the industrial sector of the Johannesburg Securities Exchange (JSE) were categorised as either diversified or focused organisations. Each category consisted of 15 organisations, against which four financial measures were compared from the period 2001 to 2005 in the form of hypotheses, to determine which category of organisations performed better than the other. Three of the four performance measures are not statistically significant to prove that either the diversified group or the focused group of organisations outperformed the other. One of the financial measures is statistically significant and it was found that the Average Market Return (AMKTRET) of focused organisations outperform the AMKTRET of diversified organisations.
