Impact of Unrelated Diversification on Financial Performance of the Firms: Evidence from Pakistan

The aim of this study is to explore the relationship between unrelated diversification and financial performance of Pakistani firms. The link between profitability and diversification strategies has been proposed by different studies. This study selected different firms for analysis listed in KSE-100 index. Different types of accounting variables are used like ROA (return on assets), ROE (return on Equity) and Tobin’s q to analyse the financial performance of firms. Data was collected from KSE website and Firm’s websites. The results of this research suggest that firms which adopt non diversification strategies have better financial performance rather than the firms adopting unrelated diversification strategy. It is also resulted that non diversifying organizations have low risk and diversifying organizations have high risk. This research includes only few firms listed in KSE-100 index. Sample size can be increased to check the validity of results. Comparison of different countries can also be done. Different statistical tests can also be applied to check the validity of research. This research also opens many doors for future research like effect of group size on diversification, the level of unrelated and related diversification.