Abstract:
Purpose: The study aimed at examining the mediating role of corporate
diversification between ownership structure and financial performance of
listed firms in Kenya.
Methodology/Approach/Design: As guided by explanatory research design,
65 listed firms from 2003 to 2017 were targeted. However, panel data of 35
firms were considered after excluding suspended and delisted as far as the
study period is concerned.
Results: The panel regression analysis finding indicated that corporate
diversification positively and significantly mediated between institutional
ownership and financial performance (β = .005, p-value = .000).
Furthermore, there was a negative but statistically significant mediation effect
of corporate diversification between foreign ownership and financial
performance (β = -.0019, p-value = .023). These mediation effects existed
despite the direct effect between institutional and as well foreign ownership
and financial performance being statistically insignificant.
Practical Implications: The study, therefore, suggested to the management of
listed firms to ensure proper implementation of corporate diversification as it
transmits the effect of ownership structure on financial performance. More
importantly, policymakers are suggested to streamline taxation of foreign
investors, tackle malpractices in the firm leading to embezzlement of investor
funds. Future studies need to enlarge the scope to incorporate unlisted firms
as well as firms listed in different stock exchanges in East Africa. Other types
of ownership structure as managerial, family and state need to be analyzed. In
addition, other forms and measures of corporate diversification could be
investigated by future researchers.
Originality/Value: To attain the main objective, the study used panel
regression analysis and path diagrams to examine the effect of ownership
structure on financial performance via corporate diversification.
