The impact of diversification on the performance of UK construction firms

Built upon theories from outside the construction management literature, this study assesses the impact of product diversification on the performance of construction firms in the UK. Performance was measured based on financial ratios of management performance while diversification was measured by the specialisation ratio. The research involved the use of financial data of construction firms covering the period 1995‐2004. The choice of the period is informed by the economic stability during the period and also, by the fact that diversification is a long‐term strategy. The findings indicate that focused firms outperform both moderately and highly diversified firms based on return on total assets (ROTA) and profit margin (PM). However, no performance difference was found between the moderately diversified and highly diversified firms.