Effects of Portfolio Diversification on the Financial Performance of Listed Investment Firms in Kenya

Abstract: The study investigated how the portfolio diversification affects the financial performance of listed investment companies in Kenya. The study was based on Modern Portfolio Theory. The study targeted five investment whose stock were publicly traded at the NSE as at 31 December 2023. The annual secondary was collected from the published annual reports and audited financial statements of investment firms that are publicly listed at the NSE. The data period was from 2014 to 2023. Standard deviation, mean, minimum, and maximum was adopted as descriptive statistical analysis. Panel regression model was adopted to examine the portfolio diversification on financial performance. The study established that portfolio diversification has a strong and positive effect on financial performance of listed investment firms in Kenya. The study recommends to listed investment firms to diversify their portfolio across a number of investment areas including bonds, bills, real estate, equity and mutual funds. Such increased diversification would result to reduced portfolio risk and enhanced returns. Further, the study recommends to capital market authority to formulate and revise existing policy on the diversification by listed investment firms in Kenya. The regulator should encourage listed investment firms to hold optimal portfolio and revise them accordingly as assets features change and macroeconomic factors evolve. Keywords: Portfolio diversification, Financial performance. Title: Effects of Portfolio Diversification on the Financial Performance of Listed Investment Firms in Kenya Author: Kuria Paul International Journal of Recent Research in Commerce Economics and Management (IJRRCEM) ISSN 2349-7807 Vol. 12, Issue 1, January 2025 - March 2025 Page No: 28-32 Paper Publications Website: www.paperpublications.org Published Date: 10-February-2025 DOI: https://doi.org/10.5281/zenodo.14844133 Paper Download Link (Source) https://www.paperpublications.org/upload/book/Effects%20of%20Portfolio%20Diversification-10022025-4.pdf