Product Diversification and Performance of Manufacturing Firms in Nigeria

Abstract

The paper examines the effect of product diversification strategy on the performance of manufacturing firms in Nigeria. A sample of listed manufacturing firms in Nigeria for the period 2006 – 2010 was used. Firm performance which is the dependent variable was measured using accounting based measure of return on assets. A dummy variable was introduced to include firms that focused on a single market segment. Data collected was analysed using Panel regression analysis employing fixed, random and Hausmann test of fixed effect estimates. The result indicates that an increase in the size of firms cause manufacturing firms to diversify their products. The Dummy variable result implies that diversifying firms have higher level of ROA. The implication of the study is that as number of shareholders increases, the lesser the decision of firms to diversify. Also, total debt level of firm may also influence diversification decision which will improve performance level.

Keyword: Product Diversification, Portfolio Theory, Core competencies, Consumer Functions, Performance