THE IMPACT OF DIVERSIFICATION ON FIRMS PERFORMANCE IN SAUDI ARABIA

Abstract

Diversification is a strategic option that many managers use to improve their firms’ performance. This research examines the impact of diversification strategy on diversified firms performance in Saudi Arabia. The relationship of the performance and the factors that effect on the firm such as firm size, risk, and return are the key decision making used by Saudi investors. As it explains the main reasons that let the investors apply this strategy in their businesses that include increases in profitability, reduction in risk, higher growth, and extension of the business life cycle. The data were collected from the annual reports of each firm in the Saudi Stock Exchange "Tadawul" and Bloomberg. The sample was taken from 8 diversified firms in Saudi Arabia listed in Saudi Stock Exchange "Tadawul’’ from the period of 2010 to 2015. The results of diversified firms in descriptive statistics and correlations showed that there is a relationship between performance with firm size and risk, as the relationship between risk and return. All firms showed that size has a positive impact on performance while the risk has negatively affected on performance. In addition, this research paper found through the use of diversification strategy in the firms, the performance will be better while the return will increase and the risk decreases. So the diversification strategy affects on the performance in a positive way. As indicated, that the highly diversified firms may perform better than less diversified firms.

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