Business diversification and performance: evidence from South African construction firms

Abstract

The paper examines whether there is any significant relationship between business diversification and the performance of construction firms in South Africa. The rational for the examination stems from the view that relationship between diversification and performance of construction firms are important issues in strategic management and cross border businesses in terms of growth. However, there is a dearth of empirical research and theoretical arguments on the effects of business diversification on the performance of construction firms in South Africa. The study employed the use of archival data for a period of five years for 16 construction companies listed in Grade 7-9 on the Construction Industry Development Board (cidb) contractor register. The data were analysed using t-statistics and correlation coefficient and the results indicate that although diversification was found to have a positive impact on the corporate performance of companies, there were no statistically significant differences in the performance of diversified and undiversified firms. The findings of this study also revealed that geographic and product diversification has an impact on the profit margin of the firms. The outcome of the research is of immeasurable value to decision makers and managers of construction companies as it will help in making viable corporate strategic decisions. The study also engenders a better understanding of the effect of both service and geographic diversification on the performance of contractors.