Effect Of corporate diversification strategies on performance of insurance firms in Kenya

Abstract

The main aim of this research project was to analyze how diversification strategy affects the performance of insurance firms in Kenya. The following objectives were used to provide guidance; to determine the significance of vertical diversification strategy on performance of insurance firms in Kenya, to study the effect of horizontal diversification strategy on performance of insurance firms in Kenya, to establish the effect of concentric diversification strategy on performance of insurance firms in Kenya and to establish the effect of conglomerate diversification strategy on performance of insurance firms in Kenya. The research adopted the modern portfolio theory, Ansoff market growth theory, the agency theory and performance maximization theory. A descriptive survey design was used in this research. The study population was the 54 insurance firms in Kenya. The target respondents were the chief finance officers or their representatives. Both secondary and primary data was utilized. Primary data was obtained using questionnaires which were administered through both drop and pick later method and email. Data was analysed using both descriptive statistics such as mean and standard deviation and inferential statistics which included correlation and regression analysis. The study revealed a significant positive relationship between horizontal diversification, vertical diversification, concentric diversification, conglomerate diversification, and performance of insurance firms in Kenya. Its regression analysis revealed that 45.6% of changes in performance of these firms were attributed to the collective use of the diversification strategies. This study concluded that diversification strategies are essential strategies for firms to use in their endeavor to improve on their performance levels. Based on the findings, horizontal diversification strategy had the greatest influence on performance followed by concentric while conglomerate and vertical diversification had the least influence on performance of insurance firms in Kenya. It was therefore recommended that managers and shareholders of the firms that are yet to diversify their portfolio should diversify to remain competitive and profitable in this turbulent business environment. It was further recommended that management of the insurance firms should come up with sound policies to guide them when diversifying